Although economic reports were mixed this week, mortgage giant Freddie Mac announced that interest rates on long-term mortgages had dropped to a new all-time low in the latest week.

“Mortgage rates followed other interest rates lower this week amid reports of slower economic growth” said Frank Nothaft, Freddie Mac vice president and chief economist. “The final estimate of economic growth in the fourth quarter was revised lower and personal incomes fell 0.2 percent in February, below the market consensus.

“On a positive note, pending existing home sales rose 2.1 percent in February, marking the second increase in three months as potential homebuyers are taking advantage of historically low mortgage rates and falling home prices. Serving as a spur to sales, housing affordability reached an all-time high in February 2009 since the series’ inception in 1971, according to the National Association of Realtors. By region, sales surged by nearly a third in the Northeast and Midwest, but fell in the West.”

The average rate on a 30-year fixed rate mortgage (FRM) decreased to 4.78 percent, excluding fees, during the week ended April 2, 2009, from 4.85 percent. The current rate is the lowest in the 30-year history of the Freddie Mac weekly survey. The average interest rate one year ago was 5.88 percent.

Rates on 15-year FRM loans also declined in the latest week, dropping to 4.52 percent, also a record low for the survey, down from 4.58 percent the previous week. Last year at this time, the average rate was 5.42 percent.

One-year adjustable rate mortgages carried an average rate of 4.75 percent, a drop from 4.85 percent the week before. During the same week of 2008, the average interest rate was 5.19 percent. The current rate represents a four-and-a-half year low.

Sales of existing homes jumped up unexpectedly in February, according to the National Association of Realtors, while a separate report found that home prices in many areas across the country dropped to record lows.

The NAR reported last week that existing-home sales increased by 5.1 percent in February to a seasonally adjusted annual rate of 4.72 million units, up from 4.49 million in January.

First-time home buyers made up about half of all buyers last month, according to NAR chief accountant Lawrence Yun. “Because entry level buyers are shopping for bargains, distressed sales accounted for 40 to 45 percent of transactions in February,” he said. “Our analysis shows that distressed homes typically are selling for 20 percent less than the normal market price, and this naturally is drawing down the overall median price.”

NAR President Charles McMillan added that the recent government amendments to the tax code were a big help in sales. “It appears most of the increase in buyer traffic occurred in the latter part of the month after the $8,000 first-time buyer tax credit was put in place,” McMillan said. “At the same time, mortgage purchase applications have risen, so we expect to see sales picking up around late spring.”

Mortgage interest rates have also been crucial to increasing sales. Mortgage giant Freddie Mac reported that the national interest rate on a 30-year fixed-rate mortgage averaged 5.13 percent in February, up slightly from the previous month, but still near record lows. And interest rates have continued to move downward in March, potentially signally more housing market activity.

Meanwhile, the home prices dropped by a great deal in January, according to a report Tuesday of the  Standard & Poor’s/Case-Shiller index. The index showed that home prices in 20 of the country’s major cities fell 19 percent from the previous year, the largest decrease in the index’s eight year history.

At least 14 cities posted double digit declines in home prices, but some areas started to show an easing in downward moving prices. These include Cleveland, Los Angeles, Las Vegas, and Washington D.C.

And while all the cities showed some sort of decline, those that had the smallest rates of decline were Dallas, Denver, and Cleveland, all showing a roughly 5 percent decrease in prices in the past year.

And while no one likes to see the value of their own home fall, these price declines may continue to help correct the housing market, making homes more affordable for newcomers and more attractive for investors.