Mortgage Rates in 2009

The Federal Reserve's $1.25 trillion MBS purchase program (QE1) directly suppressed mortgage rates. The Fed kept the federal funds rate at 0.25% and introduced forward guidance — "exceptionally low rates for an extended period" — a novel policy tool.

CPI fell to -0.4% — the first annual deflation since 1955. The near-depression conditions collapsed commodity prices and demand. Deflation risk became the Fed's primary concern.

Mortgage rates fell below 5% for the first time since the Freddie Mac survey began, bottoming near 4.7% in April. Housing starts and prices bottomed. The $8,000 first-time homebuyer tax credit drove a brief recovery.