Total mortgage originations may top $2.59trn this year, largely due to refinance volume, which will account for some 72% of the total origination market, according to projections within The PMI Group's monthly housing and mortgage market review. Origination should slip in 2010 as the refinance boom eventually wears off, falling more in line with the "modest" economic recovery expected after the second half of this year. Any growth in the broader economy in 2009 will likely be muted by continued unemployment highs. PMI upwardly adjusted GDP growth projection but edged down outlook on overall economy in late 2010, due to higher interest rates. The firm now projects a year-over-year 1.3% drop in real GDP by the end of the fourth quarter 2009 and a recovery to 1.9% real GDP growth by the end of 2010. At least one market -- the housing market -- already appears to have reached bottom. The one indicator behaving otherwise, multifamily construction, seems to lag behind with non-residential woes around financing and overcapacity. "Increasingly, the data suggest that the bottom of housing activity occurred in January – although gains since then have been small," PMI said in the report. For example, PMI noted foreclosure sales drove the home sale market in April although new home sales remained static in the month. The company said higher mortgage rates seen lately, although bad for the overall housing market, might drive near-term sales due to consumer anticipation that rates will continue to increase. Long-term mortgage rates have risen despite the unchanged Fed policy -- keeping the federal funds rate between zero and 0.25%. A recent rise in Treasury rates either could mean problem for economic rebound if inflation expectations are at the helm, or it could be a natural byproduct of the market moving toward more normal metrics. The problem, according to the PMI Group, is that the Fed and other policy makers cannot tell for sure what the cause is. "Ultimately the Fed will have to tighten monetary policy and the federal government will have to reign in deficit spending -– but is that time now? Given that the economy is still in recession, the answer is that policy will need to be expansionary for a while longer," PMI says in the report. "But providing financial markets with a believable “exit strategy” from the current policy stance could be important in calming markets and ensuring that rising rates don’t short circuit the recovery." Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.