It was only a month ago that the Mortgage Bankers Association (MBA) projected that the industry would complete about $1.5 trillion in mortgage originations in 2010 compared to $2.0 in new mortgages in 2009.  This 25 percent decline was bad news at the time, but the MBA's Mortgage Finance Commentary released this morning paints an even grimmer outlook.

The new figures call for a decline in mortgage originations to their lowest level in a decade, a drop of 40 percent over the 2009 figure. The forecast is now for a total of $1.3 trillion mortgage originations this year compared to an updated estimate of $2.1 trillion in 2009.

In the original estimate released on December 14, purchase originations during the year were estimated to increase from $718 billion to $804 billion. The new report still anticipates an increase in the origination of these mortgages, but only from an updated figure of $742 billion in 2009 to $776 billion this year. This slight increase will be overwhelmed by plummeting originations for refinancing, projected to fall from $1.372 trillion to $502 billion this year. The original projection was for refinancing totally from $1.246 trillion to $693 billion.

The report said that data showing strong existing home sales in November reflected expectations that the homebuyer tax credit was ending but that home sales are likely to continue to adjust downward in upcoming months in spite of the fact that the tax credit was extended.

The association said that it is difficult to analyze data on current marketing conditions because cyclical swings are obscuring seasonal movements.  Because of this difficulty in untangling the two competing factors, MBA is taking some of the recent improvements in housing measures "with a grain of salt" as they may merely reflect seasonal impacts. With that in mind, the forecast projected declines in home prices through the winter but showing some signs of stabilization in the spring.  Still, a return to more typical rates of appreciation should not be expected until 2012.    

The Federal Reserve will meet their commitment to purchase $1.25 trillion in agency MBS during the first quarter and will not be likely to raise interest rates this year.  The report projects that rates will increase by about a percentage point over the year, ending at just 6.1 percent as a result of widening mortgage spreads and an increase in treasury rates driven by federal budget deficits. Once the Fed stops buying MBS, yields will have to increase before private investors come back into the market

Both single family and multi-family housing starts increased during November.  The former were up 2.1 percent to a seasonally adjusted rate of 482,000 units. Multi-family starts rose 62.7 percent to 83,000 units, but this was coming off of a 40 year low of 51,000 starts in October.  Permits for single family construction were issued for 469,000 units on a seasonally adjusted annual basis.  This is a 4.5 percent increase over October figures. 

Seasonally adjusted sales of existing single family homes increased to 6.54 million units in November, 7.4 percent higher than October sales and 44.1 percent higher than in November of 2008.  While sales were down on a non-adjusted basis by about 5 percent from October, the seasonally-adjusted sales represented the fastest pace of existing home sales since February 2007. The report cautioned against expecting that pace to continue. "For the full year 2010 we are expecting about 5.4 million existing home sales.  Nevertheless, this was good news for the housing market."

Inventories of existing home continue to decline, driven by an increase in sales and fewer homes being listed. The current inventory declined from a 7 month supply to a 6.5 month backlog in November and the number of units available fell from 3.6 to 3.5 million.

New home sales as reported by the Census Bureau declined 11.3 percent in November to a seasonally adjusted annual rate of 355,000 homes.  New home inventories also continued to fall to 235,000 in November from 240,000 in October which MBA called "an extremely low number of new homes on the market relative to historical trends."  The slowing pace of sales, however, boosted the absorption rate of that inventory from 7.2 months in October to 7.9 in November. The report projected that new home sales will gradually increase from these low levels through 2010, ending the year at around 412,000 in new home sales.