Retail sales were better than anticipated in September as broad based gains helped offset a 10.4 percent decline in motor vehicle sales.

Total retail sales declined by 1.5 percent in September, less than the 2.1 percent drop economists had forecast. Excluding auto sales, which experienced their largest monthly fall since August 2005, retail sales were 0.5 percent higher in September, better than forecasts for a 0.2 percent increase.

Economists expected the expiration of the government's Currency for Clunkers rebate program to drag down the monthly change in total retail sales, however a 1.4 percent gain in home furnishing sales, a 1.1 percent increase in gasoline sales, a 0.9 percent boost in grocery sales, as well as a 0.9 percent improvement in general merchandise purchases helped offset the anticipated decline in auto sales.

There is a lot of optimism in the economic forecast released by the Mortgage Bankers Association (MBA) on Monday, but a lot of realism .

The association expects economic growth to continue for the rest of this year but to slow down again during the first half of the next. The MBA says real GDP which will be a negative 0.5 percent in 2009 despite gains in the second half of the year will rise to about 3 percent in 2010

Jay Brinkmann, MBA's chief economist and senior vice president for research and economics said, "The recession is behind us but the effects of the recession will linger for some time in the form of higher unemployment, and lower levels of business investment and home construction. Six of the gigantic questions regarding growth will be the behavior of consumers. The large losses of consumer wealth in the form of reduced home values and stock market losses, as well as the absolute losses of income resulting from unemployment, reduced employment and the fear of unemployment have constrained consumer spending."

While lots of forecasters are saying that employment is improving, MBA sees unemployment continuing to climb, reaching 10 percent from the current 9.8 percent by the finish of the year and peaking at 10.2 percent before it begins to decline at the midpoint of 2010.

The rate of existing home sales this year is expected to be 2 percent higher than in 2008 and will increase another 11.2 percent during 2010. However, new home sales for 2009 will be down by about 18 percent relative to 2008. Sales seemed to have bottomed in the first quarter of 2009 and have been rebounding modestly since. This should improve next year; new home sales should post an increase of around 21 percent from 2009's low levels.

The forecast projects that mortgage rates will remain stable at around 5 percent through the finish of the year but will rise to around 5.6 percent by the finish of 2010. The low rates will spur refinancing which are expected to hit $1.25 trillion by the finish of 2009 from $777 billion in 2008. As rates rise, however, the refinancing boom will slow to around $745 billion next year. All originations, however, are expected to reach $1.5 trillion as modest increases in home sales compensate for the decline in refinancing. Purchase originations this year are about 2 percent below the level of 2008 but should rise next year by about 12 percent from the total the 2009 figure of $718 billion.

Brinkmann stated, "Timing of the economic recovery is much tied to the growth in consumer spending. In addition, the effect of the bulk of the federal stimulus package, the construction components, is not expected to be felt until 2010.

The drop in home prices nationally may finally reach an finish by early next year but that will vary by locality and home value with demand expected to be highest for entry level homes.

"Perhaps the biggest unknown is the level and volatility of interest rates. While the lack of inflation, high unemployment and excess capacity in the economy should hold interest rates down, there is a lot of uncertainty regarding rates immediately following the termination of the Federal Reserve's purchase of mortgage-backed securities. No doubt the Fed will do its best to minimize adverse effects, but the elimination of these purchases will put upward pressure on all long-term rates as well as the spread between mortgage rates and Treasuries. The size of any resulting rate move will largely choose the size of the refinance mark