Declining demand for refinancings will push overall mortgage originations to less than $1 trillion next year, according to the Mortgage Bankers Association.

MBA officials expect mortgage originations of $1.4 trillion this year, but slow economic growth and no significant job growth will hinder mortgages into 2011. Still, the MBA does expect to see an increase in purchase originations next year led by "modest increases in home sales and stabilizing home prices."

"Economic growth in 2010 has been subdued and this trend will likely continue for most of 2011," said Jay Brinkmann, MBA chief economist and senior vice president for research and economics. "Households remain cautious given the weak job market.  On top of that, uncertainty regarding tax rates for next year, and the potential for tax withholding to increase at the beginning of the year, lead us to forecast that consumer spending will remain weak, particularly in the first half of 2011."

On Wednesday, Brinkmann joins Doug Duncan, chief economist at Fannie Mae, Lyle Gramley, former Fed governor, and Richard Peach, senior vice president of the New York Fed, on the closing panel of the MBA's annual conference in Atlanta.

The MBA projects purchase originations of $480 billion for 2010, which is about 28% below the $665 billion a year ago. MBA expects a 30% increase in 2011 with another gain in 2012 to $877 billion.

The MBA said new home sales reached bottom in the third quarter and will recovery slowly through next year, increasing about 20% from the trough with another 40% gain in 2012 as markets recover.

But mortgage rates that are all but assured to rise throughout the next two years from current generational lows will dampen refinancing activity, according to the MBA. The association expects refinances to fall by 60% next year to $370 billion, "as mortgage rates increase and the pool of eligible borrowers shrinks." Currently refinancings account for about 80% of all mortgages, but the MBA expects that to fall to 37% in 2011 and 26% the following year.

The MBA based estimates on slowing GDP growth; continued high employment that's flirted with 10% all year; and the expectations rates for 30-year, fixed mortgages will climb from about 4.4% now to 5.1% by the end of next year and 5.7% by December 2012.

"Various factors are driving our rate forecast," Brinkmann said. "The sluggish economy, weak private demand for debt financing, and low inflation are keeping downward pressure on rates.  Offsetting that, however, is the large increase in government financing needs and the impact the weakening dollar has on foreign investors in U.S. debt."

MBA doesn't expect much change in the market following next week's meeting of the Federal Open Market Committee.

"At this point, we think the most likely scenario is that the Fed will purchase additional Treasury securities, but that the market has already priced these anticipated actions into today's rates.  In other words, absent some blockbuster post-election announcement from the Fed on November 3, we do not expect to see a further decline in rates," Brinkmann said.

Write to Jason Philyaw.