WASHINGTON – The Mortgage Bankers Association released its three-year economic forecast update last week, and based on its findings the U.S. economy is in good shape. The MBA is projecting a “robust” economic growth of 3.5% through 2007. In addition, total residential mortgage production in 2005 will be $2.74 trillion, the third biggest year behind 2002 and 2003. “At about 3.5% , economic growth will be solid this year, despite a drag from sharply higher energy prices and a widening trade deficit,” said Doug Duncan, MBA Chief Economist and SVP, Research and Business Development. Duncan said housing would be a major contributor to the nation’s economic growth. Both new and total existing sales had the second strongest showings ever in May – in the first five months of 2005 total sales are 5.5% ahead of sales during the same period in 2004. The purchase applications index in the MBA’s survey increased to a record high monthly average in May and again in June. Home sales are projected to increase by about 2% from last year. Duncan predicted that long-term rates would remain low, supporting residential and commercial real estate finance activity. The MBA projects long-term rates will go up about 20-30 basis points by the end of the year and another 40 to 50 basis points during 2006, finally reaching about 6.25% for a 30-year, fixed-rate mortgage in 2007. Even so, Duncan said interest rates would still be low by historical standard. Given the current low rate environment, the MBA says total home sales for all of 2005 should set the fifth consecutive annual record. As for housing starts, the MBA reports that in the first five months of 2005 they surpassed those during the same period in 2004 by 5.5%. For all 2005, the MBA expects total starts to increase by about 3% from last year. Lastly, the MBA expects home price appreciation to slow to about 7% for all of 2005. Overall, the MBA concludes that mortgage originations in 2005 should increase by 5.8% from 2004 to $2.74 trillion. On the labor front, the MBA forecasts the unemployment rate will decline from its current level of about 5.0% to 4.9% by the beginning of 2007. The labor market is expected to add an average of about 180,000 jobs monthly. -

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