Despite predictions that a wave of refinancings would produce record originations in the mortgage industry this year, underlying economic conditions have begun to deteriorate and are threatening the purchase end of the business.

Existing-home sales plummeted nearly 7% both in December and in January from the preceding months, according to the National Association of Realtors. Though January’s number was 2.4% higher than in the same month a year earlier, the association said waning economic indicators have taken their toll.

Keith Gumbinger, vice president of HSH Associates in Butler, N.J., said consumer confidence has declined, layoffs have risen, and the stock markets have not produced the burgeoning returns in the last nine months that investors had become used to in the previous two years.

Because of these factors, the housing market, which had been considered one of the ailing economy’s bright spots, is starting to show weakness, Mr. Gumbinger said. “The conditions that generate a good home-sales environment have been collectively declining over the last couple of months,” he said.

Many industry observers, heartened by declining mortgage rates and rising refinancing activity, had predicted that mortgage originations could top $1.5 trillion this year.

However, Mr. Gumbinger said that, though rates drive refinancings, purchases remain dependent on factors including consumer confidence, the job market’s health, and housing inventory. “If you disturb any one of those factors, you will find a downdraft in housing purchases regardless of where interest rates are,” he said.

Doug Duncan, chief economist for the Mortgage Bankers Association, said existing-home sales, though not a good sign, must be compared with data such as new-home sales, consumer confidence, unemployment, and gross domestic product. The latter will come out this week.

Nonetheless, he said, housing has been cushioning the falling economy so that any softening in the sector could have a wider impact.

“If consumer confidence continues to fall, it will start to eat into sales numbers and show up in consumers’ reducing spending,” Mr. Duncan said. That in turn could lead to inventory problems in auto sales and other manufacturing sectors, which could feed unemployment, he said. “Our forecast is sitting on the edge of the razor.”

Mark Zandi, chief economist at, cautioned people not to read too much into the latest number. January is historically a slow month for homebuying, he said.

The purchase market, however, will be hard pressed this year to match its 2000 performance, he said. “The existing-sales performance may be an indication that housing demand is moderating further under the weight of weaker consumer confidence, employment, and a lower stock market,” Mr. Zandi said. “Lower rates have helped, but it’s not enough to outweigh all the negatives on the market.”

Refinancing activity will play a much larger role in this year’s performance, Mr. Zandi said. For example, a 25-basis-point swing in mortgage rates could mean as much as a $1 trillion difference in originations, he said.

In addition, several observers said mortgage rates appear to have flattened out and the average rate for a 30-year loan may not fall much lower than its current level a bit above 7%.

Orawin Velz, senior economist at Fannie Mae, said the slowing economy is starting to weigh down the housing industry but that she does not expect a recession. The housing numbers are “weaker than expected,” she said, “but that’s not surprising when you consider the trends in consumer confidence, the stock market, and job losses.”

Home sales will decline from last year but only moderately, Ms. Velz predicted. “The housing sector is going to reflect the same thing the economy is going through. We are going to have a soft landing,” she said. “We truly expect that the economy will rebound and get stronger but it won’t come until the third or fourth quarter of the year.”

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