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Mortgage Applications Remain Near Three-year High

The Mortgage Bankers Association's seasonally adjusted index of mortgage application activity fell 1.2 percent in the first week of October. The index measures mortgage applications for both home purchases and refinancing; the former rose, while the latter dropped. Refinancing applications fell 2 percent, but even with the decline, the volume of applications still remains close to three-year highs. Meanwhile, the gauge that measures the number of loan requests from home buyers rose 2.4 percent. Applications for home purchases, one of the key indicators of home sales, reached their highest levels since June.

Mortgage Rates Still at Record Lows
The week ending October 19 saw the fixed 30-year mortgage rate average 3.37 percent, hovering near its record low of 3.36 percent, according to Freddie Mac's Primary Mortgage Market Survey. The 15-year fixed-rate mortgage—one of the most popular options for refinancing—fell to a new low of 2.66 percent.

The Fed's Quantitative Easing Policy
In a bid to assist the struggling economy and keep mortgage rates low, the Federal Reserve will buy $40 billion in mortgage-backed securities each month. The move will free up capital for banks, which in turn should improve the economy at large and give a much-needed boost to the housing market. The program, known as quantitative easing, will continue until the economy in general—and the job market in particular—improves.

Keeping the Federal Funds Rate Low
The Federal Reserve also announced they would be keeping the federal funds rate at near zero until mid-2015, if not longer. While the low funds rate is not expected to directly stimulate home sales, it will put downward pressure on interest rates and hopefully help fuel the economic recovery, in turn improving the housing market.