California will continue to recover from its worst downturn in 60 years and the Mountain States will outpace the rest of the country in economic growth, but the Northeast will remain the weakest region in the nation, according to Fannie Mae.

David Berson, Fannie's chief economist, predicted during an economic forecast press conference Dec. 13 that the West would be the nation's strongest region, adding that no states were expected to be in recession in 1995.

He said rates on 30-year, fixed-rate mortgage will rise to a high of about 9.5%, but would decline to roughly 8.5% by year-end, and that mortgage originations are likely to decline to $630 billion in 1995, down from roughly $750 billion in 1994. The pace of originations in 1995 was also expected to be much quicker than that of the second half of 1994.

Signs of slower economic growth will emerge in the spring of 1995--along with modest inflation, Berson said, and long-term interest rates should begin falling and will drop roughly 75 basis points by the end of the year. He also predicted the adjustable-rate share of mortgage originations would drop to about 30% at the end of 1995 from its current 50% share, mostly because of stabilized rates and growing disinterest in low teaser rates for the product.

Refinance originations are projected to drop to a 15-year low of just 12% of the entire origination market. Purchase originations, however, should rise slightly to $545 billion in 1995 up from $525 billion in 1994.

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