MBA attributes much of the anticipated economic growth to the housing market which has been able to assist in the economy's ability to override drastically increased energy prices and a growing trade deficit. Residential mortgage production will reach $2.78 trillion for 2005, and single-family home sales, as MBA surmises, are expected to reach record highs for the fifth year in a row.

And while economists expect the Federal Reserve to manipulate interest rates to keep inflation under control, MBA predicts that such changes will not produce a negative effect on the mortgage banking industry. "Long-term rates, albeit rising, will remain relatively low, supporting residential and commercial real estate finance activity," says Doug Duncan, MBA chief economist and senior vice president for research and business development. "Long-term rates have risen by about 40 to 50 basis points from their lows immediately after Hurricane Katrina." He notes that the 30-year fixed-rate mortgage yield should reach 6.8% by the end of 2007. "Even with this moderate increase from the current level, interest rates will still be quite low by historical standards."

Carefully researched estimates notwithstanding, MBA concedes that the projected 3.5% economic growth is not a sure thing. Factors such as higher oil prices, higher core inflation or more drastic Federal Reserve action could give yield a lower growth percentage. However, the converse situation could arise, as rebuilding in the Gulf could giver rise to a larger increase in growth than expected.