RealEstateEconomyWatch.com

Expecting overall mortgage originations to fall about $400 billion next year, the Mortgage Bankers Association hopes for a 30 percent rebound in mortgages originated for home purchases next year, according to its economic forecast released Tuesday.

Total existing home sales for 2010 will be around 8 percent lower than in 2009, despite a boost to sales in the first half from the homebuyer tax credit program. Existing home sales are projected to increase modestly in 2011, increasing by a little less than 2 percent, before increasing by about 16 percent in 2012, MBA said.

New home sales for 2010 will be down by about 13 percent relative to 2009. MBA said that new home sales bottomed in the third quarter of 2010 and will begin a slow recovery in 2011, increasing around 20 percent from a low base, and then increasing 40 percent in 2012 as markets recover.   

Mortgages originated for home purchases this year will end up at about $480 billion, about 28 percent below the level of $665 billion last year, despite the stimulus provided by the extended homebuyer tax credit.  Purchase originations should rise about 30 percent in 2011, as existing home sales recover and home prices stabilize, and should rise again in 2012 to $877 billion.

The bankers are counting on a better housing market to offset its predictrions for a steady decline in refinance originations as mortgage rates gradually increase throughout 2011 and 2012.

Fixed mortgage rates are expected to average about 4.4 percent in the fourth quarter of 2010, increase to 5.1 percent by the end of 2011, and head towards 5.7 percent in 2012.

Refinance originations will end 2010 at $921 billion, a decrease of 31 percent from $1.3 trillion in 2009. Refinance activity will decrease by 60 percent in 2011 to about $370 billion as mortgage rates increase and the pool of eligible borrowers shrinks, and fall further to $310 billion in 2012.