In the wake of an overwhelming supply in the housing market combined with unprecedented government efforts to reduce rates, interest rates on 30-year fixed-rate mortgages hit 4.85 percent for the week of March 26th, a new record low.

The rate was the lowest since Freddie Mac (FRE)'s Primary Mortgage Market Survey began recording data in 1971. Treasuries soared last week following move by the Federal Reserve to buy up to $300 billion in longer term treasury securities, sending interest rates plunging.

The previous record was 4.96 percent, sent 10 weeks earlier. The Fed's announcement was the catalyst for the drop, Freddie Mac Vice President and Chief Economist Frank Nothaft said in a statement.

The Federal Reserve's announcement that it intends to purchase Treasury securities over the next six months caused bond yields to drop and mortgage rates followed, he observed.

Lower rates are meant to encourage home-buying, and some impact on the struggling housing market is beginning to show. Industry data released on Wednesday showed that mortgage application volume rose over 32 percent last week, as low mortgage rates on the heels of the Fed's decision to buy Treasury securities encouraged both the purchase and refinancing of mortgages.

The Mortgage Bankers Association revealed that its market index of mortgage application volume jumped 32.2 percent on a seasonally adjusted basis for the week of March 20th, following a 21 percent jump last week. The Market Composite Index was1159.4 compared to 876.9 in the previous week.

On an unadjusted basis, the index increased 31.4 percent and 18 percent on a year-over-year basis.

Mortgage rates fell sharply to low levels not seen in six decades following the Federal Reserve's announcement on the Treasury bond and mortgage-backed securities purchase programs. The drop offered a sizable refinance incentive for most homeowners sparking a pickup in refinance activity, said Orawin Velz, Associate Vice President of Economic Forecasting.

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