Fed Action Sends Rates to Record Lows

By Peter King, Published: September 20, 2012

Interest rates on fixed-rate mortgages have fallen back to record lows in the wake of last week’s Federal Reserve announcement of a renewed round of economic stimulus.

Average rates on 30-year fixed-rate loans fell to 3.49 percent, according to the weekly Freddie Mac rate survey, tying their all-time low reached in late July. The average on 15-year fixed-rate mortgage fell to a new record low of 2.77 percent, besting the previous record low of 2.80 percent, also set in late July.

Last week’s averages for the two types of mortgage loans were 3.55 percent and 2.85 percent, respectively.

Meanwhile, initial rates on 5-year adjustable-rate mortgages (ARMs) moved in the other direction, to an average of 2.76 percent, up from 2.72 percent last week.

Decrease follows Fed announcement

The drop in fixed rates followed the Fed’s announcement last week that it would engage in a third round of “qualitative easing,” nicknamed “QE 3” by the financial community, in an effort to further reduce interest rates and stimulate the economy.

Specifically, the Fed said it would increase its purchases of mortgage securities while continuing to minimize the Federal Funds rate, charged to banks for short-term loans, for at least three years. In addition, the Fed stated that it would continue to keep rates low until well after an economic recovery was clearly underway.

Mortgage rates are hitting record lows even amid new indications that the housing market may be on the rebound. On Wednesday, the National Association of Realtors announced that both existing home sales and prices posted strong annual gains in August, while the Census Bureau announced that construction starts of single-family homes are running well ahead of last year’s levels as well.

First published at: http://www.mortgageloan.com/fed-action-sends-rates-record-lows-9246

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