Interest Rates are at historically low levels. In an effort to revitalize the housing market, the Federal Reserve has been using tools of monetary policy to keep costs low for would-be home buyers and help home owners whose interest rates shot-up in the wake of the 2007-09 financial crisis. Why? Because the housing market remains the biggest drag on the US economy – residential investment is 49% below what it would be normally, resulting in an estimated $370 billion loss in economic activity. However, mortgage rates continue to drop in response to monetary policy actions such as QE3, which guaranteed the Fed’s purchase of $40 billion worth of mortgage backed securities/month indefinitely. While rates may continue to decline, the process will be gradual; if banks slashed mortgage rates too fast, they would be unable to handle the demand from Americans seeking to buy or re-finance their home. Still, today’s rates are unprecedentedly low, as shown by the infographic below:Note: As of 11/14/12, the average 30-year fixed mortgage rate was 3.41%.
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