Home lending expected to drop below $1 trillion next year

Meanwhile, refinancing will total about $921 billion, a decrease of 31 percent from $1.3 trillion in 2009. Refinance activity is then expected to sharply drop by 60 percent next year to about $370 billion as mortgage rates increase and the pool of eligible borrowers shrinks. That figure will drop further to $310 billion in 2012.

Continued economic uncertainty, high unemployment and lack of a clear tax-rate policy is factored into the MBA’s forecast for loans. 

Because the market has already priced Treasury securities in anticipation of an announcement by the Federal Reserve next week that it will buy more government debt, interest rates have likely hit their bottom, Jay Brinkmann, MBA’s chief economist and senior vice president for Research and Economics, said in a statement. 

“In other words, absent some blockbuster post-election announcement from the Fed on Nov. 3, we do not expect to see a further decline in rates,” he said.   

Fixed loan rates are expected to average about 4.4 percent in the final quarter of this year, increase to 5.1 percent by the end of 2011 and hit 5.7 percent in 2012.