The third quarter is shaping up to be the best in 2011 from the standpoint of mortgage originations according to the Mortgage Bankers Association (MBA).  Figures released on Friday predict that the September-December period will see a total of $294 billion in originations and the year will finish up with $1.1 trillion in residential volume.  The year-end results will be approximately $100 billion higher than earlier forecasts due to more refinancing than anticipated.  Purchase originations however will be lower than predicted.

Despite the upgraded expectations it appears that 2011 will end up with a lower volume in every quarter of the year than was seen in 2010, and MBA does not see any growth in the coming year.  "Despite lower forecasted mortgage rates, weaker projected economic growth in 2012 led to a reduction in MBA's origination forecast for that year to $931 billion, which would be the lowest volume originated since 1997."  The estimate for 2012 is a downgrade of about $30 billion from earlier predictions.

Estimated and Actual Mortgage Volume

(Figures in $billions)

Refinancing is estimated to account for $191 billion or 65 percent of the volume in Q3, $129 billion (58 percent) in Q4 and 63 percent for the entire year.  Even though the volume of mortgages is predicted to decline next year, the share of purchase mortgages will increase to 57 percent of the total.

Jay Brinkmann, MBA's Senior Vice President of Research and Education and Chief Economist said there have been many unprecedented events over the past month including the debt ceiling crisis, S&P's downgrade of US debt, the debt crisis in Europe, a commitment and a high level of stock market volatility. 

"While there is substantial uncertainty about how these events will impact consumer and business behavior," Brinkmann said, "we do not believe that the economy is facing the same types of risks as in 2008.   Were the US economy to enter a recession, it would likely be the result of an external shock, and would be shallow and relatively brief.  On the other hand, given that both fiscal and monetary policymakers' options are limited at this point, it would be difficult for policy changes to soften any blow."

Brinkmann continued, "As negative as much of this outlook appears to be, there are some indicators that have been more promising.  None of these factors suggest any strong growth, but in total they do suggest a path out of this slowdown. Thus, we have revised our projections from previous estimates for GDP growth downward from 1.9 percent growth to 1.5 percent growth for 2011 and from 2.8 percent growth to 2.3 percent growth in 2012. Given the overall path of economic growth, we expect that the unemployment rate will stay above 9 percent for the remainder of 2011 and drop only slightly below 9 percent by the end of 2012."

"Nothing in the housing market data suggests any significant change from our previous expectation of a frustratingly slow period with lackluster sales volumes.  Purchase application volumes remain stuck at low levels, and even fell further in response to the volatility surrounding the events described above.  Relative to last month, we have reduced our estimate for purchase originations in 2012 significantly, matching our more pessimistic outlook for the economy, the job market, home sales, and home prices.  We still see purchase volume increasing in 2012 relative to 2011's volume of $412 billion, but now see just a little more than $100 billion of increase on a year-over-year basis."

MBA is predicting total sales of 5.26 million new and existing homes by the end of this year, compared to 5.05 million in 2010.  Sales of both new and existing homes will rise slightly in 2012, totaling 5.53 million for the year. The median price of an existing single family home will be $171,800 in the third quarter but will drop to $167,200 in the fourth quarter and will continue to decline through the first half of 2012, ending the year at $172,400.