Mortgages to Set Record, Group Says

U.S. mortgage lenders are expected to issue a record $3.4 trillion in new loans this year, a 36.5% increase over the prior record set last year, a U.S. mortgage industry group said Monday.

Lower mortgage rates, which in June hit their cheapest levels in more than 40 years, have fueled torrid home sales and refinancing. The housing and refinancing booms have been the twin bright spots in an otherwise sluggish U.S. economic recovery.

With a gradual pickup in economic growth and mortgage rates in the second half of 2003, the record volume of mortgage demand will begin to subside after this year, the Mortgage Bankers Assn. of America said.

In their three-year forecast, the industry group’s economists predict the mortgage industry will issue $1.94 trillion in new loans in 2004, a 43% drop from 2003’s expected volume. By 2005, new originations will total $1.46 trillion, falling 25% from 2004 to its lowest level since 1998.

Meanwhile, interest rates on 30-year mortgages, the loan type held by about 70% of American homeowners, will average 5.7% this year, a tad higher than current levels, the association said.

The 30-year average rate will rise to 6.1% next year and to 6.7% two years from now, the group said.

Red-hot demand plus low borrowing costs have heated up home prices over the last several years, fanning fears of a “price bubble” in the housing market.

In their forecast, the association’s economists said: “There is no price bubble, but price growth will slow over the three-year period.”

Home sales and price appreciation will cool from their record increases, the economists said.

Combined new and existing home sales will climb to 6.825 million units this year, a 4.4% increase from 2002’s record level, they said.

Home sales will slip to 6.577 million units in 2004, a 3.6% drop from 2003, and 6.399 million units in 2005, a 2.7% decline from 2004.

Meanwhile, the median price on a new home and an existing home will grow 3.3% and 5.4%, respectively, in 2003.