Mortgage Bankers cut outlook

May 20, 2004 at 1:31 PM

WASHINGTON, May 20 (UPI) -- The U.S. Mortgage Bankers Association Thursday cut its 2004 mortgage originations forecast by $200 billion due to anticipated interest rate hikes.

The group said it now expects $2.4 trillion in originations this year, down from a previous forecast of $2.6 trillion. The group predicted that rising rates will shrink refinancing, even though home sales are expected to stay strong.

"Because of strong employment growth in March and April, rising inflation pressures and solid production growth, the Federal Reserve is likely to begin raising rates in June," said MBA chief economist Doug Duncan.

"Our forecast has for some time anticipated that the Fed would wait until late this year before starting to raise short-term interest rates, but the growth of the economy has accelerated and raised the likelihood of a near-term rate increase," Duncan said.

MBA's forecast calls for 10-year Treasury yields to hit 4.90 percent in the fourth quarter and average 4.50 percent for the year.

Rates for the 30-year fixed-rate mortgage are expected to hit 6.40 percent by the end of the year, MBA said.

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