The bottom line for housing is that while existing-home sales are projected to rebound slightly in 2009, residential investment will continue to decline in the first half of 2009 and new-home sales won't bounce back until 2010, said MBA Chief Economist Jay Brinkmann. "Credit markets continue to be dysfunctional and the recent intensification of the credit crunch is hitting an already weakened economy," Brinkmann said in a statement announcing the MBA's latest economic forecast.

Rates for fixed-rate mortgages have ticked up to around 6.5% in recent weeks in response to policymakers' programs to recapitalize banks and insure financial institutions. Demand for long-term debt will bring 30-year fixed-rate mortgage yields back to an average of 6% in the 4Q of 2008, and that they'll stay near or below that level through 2009 before trending up modestly in 2010 as the economy recovers.

The MBA expects the unemployment rate will grow from the current 6.1% to about 6.5% by the end of 2008, and steadily increase to a peak of 7.8% by the first part of 2010.

The MBA sees existing-home sales for 2008 ending up about 13% below 2007 totals, before increasing by 3% in 2009 and 6% in 2010.

New Home Sales - The MBA projects 2008 new-home sales will be down 36% relative to 2007, and see another 12% year-over-year decline in 2009 before growing by 25% in 2010. Median home prices for new and existing homes are expected to fall about 6 to 7% in 2008, and decline by 3 to 4% next year before rising slightly in 2010. What those sales and price trends mean for mortgages is a slight pickup in purchase loan orignations next year, but a continuing slide in refinance activity until 2010.

The MBA forecasts total residential mortgage production for 2009 will total $1.67 trillion, down 10% from an expected $1.86 trillion in 2008 and down 27% from the $2.3 trillion seen in 2007.

At a projected $912 billion, purchase originations are expected to be off 20% this year from last, but should rise 2% in 2009 and 9% in 2010 as home sales rebound and prices hit bottom, the MBA projects.

Refinance originations are expected to be off by 19% this year, to $949 billion, declining another 23% next year before growing by 4% in 2010 as lending standards ease.