Investors are buying up Treasury bonds in anticipation of a move by the Federal Reserve designed to lower mortgage rates and yields on corporate debt.
As a result, the average rate for 30-year fixed loans dropped to the lowest level on records dating back to 1971, mortgage buyer Freddie Mac said Thursday. It's down from 4.27 percent the previous week. The last time rates were this low was in the early 1950s.
The average rate on 15-year fixed loans fell to 3.62 percent, the lowest on records dating back to 1991, Freddie Mac said.
Rates have fallen since spring as investors shifted money into the safety of Treasury bonds. That demand lowers their yields, which mortgage rates tend to track. The 30-year rate was 5.08 percent at the beginning of April. The 15-year rate was 4.39 percent.
Low rates haven't helped the struggling housing market, which recorded its worst summer in more than a decade. But they have led to a surge in refinancing.
And rates could fall even further in the coming week.
The Federal Reserve is leaning toward buying more Treasury bonds to drive down loan rates and boost the economy, according to minutes of closed-door deliberations released Tuesday. Economists predict Fed officials will approve a bond purchase program at their Nov. 2-3 meeting.
Two Fed officials in recent remarks have suggested the new purchases shouldn't exceed $500 billion. That would be smaller than a $1.7 trillion program launched during the recession.
The program would likely push mortgage rates down - possibly lower than 4.0 percent on the 30-year fixed loan.
Some analysts say rates are more likely to hover above 4.0 percent, without breaking that threshold.
"A lot of the impact that you would expect from this program is already priced into the market," said Mike Larson, real estate and interest rate analyst at Weiss Research. "If there's any risk, it's that what the Fed announces turns out to be a disappointment in some way. You might see rates go up a little bit."
To calculate average mortgage rates, Freddie Mac collects rates from lenders around the country on Monday through Wednesday of each week. Rates often fluctuate significantly, even within a given day.
Rates on five-year adjustable-rate mortgages averaged 3.47 percent, the same as the previous week. Rates on one-year adjustable-rate mortgages rose to an average of 3.43 percent from 3.4 percent.
The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount. The nationwide fee for loans in Freddie Mac's survey averaged 0.8 a point for 30-year and 1-year mortgages. It averaged 0.7 of a point for 15-year and 0.6 of a point for 5-year mortgages.