Dec. 31 (Bloomberg) -- U.S. mortgage rates dropped to the lowest in more than three decades as the government stepped up efforts to revive the housing market.

The average rate on a 30-year fixed mortgage tumbled for a ninth straight week, to 5.10 percent from 5.14 percent a week earlier, Freddie Mac said in a report today. That’s the lowest on record, according to data that goes back to 1971, the McLean, Virginia-based mortgage buyer said.

The Federal Reserve is buying $500 billion of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae in an attempt to lower mortgage rates and curb the housing slump at the center of a yearlong U.S. economic recession. Low borrowing costs may not be enough to offset 2008’s loss of 1.9 million jobs, said Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut.

“You can’t get a mortgage if you’ve lost your job,” Darda said. “When you add up the high inventory, tight lending standards, and a weak labor market, there are more negatives than positives for housing, even with the low rates.”

Yesterday, the Federal Reserve said it will use BlackRock Inc., Goldman Sachs Asset Management, Pacific Investment Management Co. and Wellington Management Co. to manage the mortgage bond purchases it announced on Nov. 25.

Shrinking Economy

The program is intended to lower rates by reducing the supply of outstanding agency mortgage bonds, boosting their prices and thus lowering their yields. Lower yields in turn reduce the interest rates banks need to charge on new mortgages to ensure profitable sales of the securities. The purchases should be completed by June, the Fed said in a statement yesterday.

The U.S. economy shrank at a 0.5 percent annual pace in the third quarter, the Commerce Department said Dec. 23. Economists surveyed by Bloomberg earlier this month estimated the economy probably will contract at 4.3 percent this quarter, the biggest decline since 1982, and would continue contracting for the next two quarters. The U.S. jobless rate could reach 8.2 percent at the end of next year, a 26-year high, according to the survey.

The 15-year fixed rate fell to 4.83 percent from 4.91 percent and the one-year adjustable rate dropped to 4.85 percent from 4.95 percent. Shares of U.S. homebuilders pared their losses after the Freddie Mac survey was released.

The Federal Reserve Dec. 16 cut its benchmark interest-rate target to as low as zero and said it will buy debt as the next step in combating the longest recession in a quarter-century and reviving credit.

Yesterday, the Federal Reserve said it will use BlackRock Inc., Goldman Sachs Asset Management, Pacific Investment Management Co. and Wellington Management Co. to manage the purchase of $500 billion of mortgage-backed securities it announced on Nov. 25.

Home Prices Fall

Home prices in 20 U.S. cities tumbled 18 percent from a year earlier in October, the fastest rate on record, depressed by mounting foreclosures and slumping sales, according to a S&P/Case- Shiller report released yesterday. Between August 2002 and April 2006, year-over-year price increases exceeded 10 percent every month.

Sales of single-family homes in November dropped 7.6 percent from the prior month, the most in two decades, according to the Chicago-based National Association of Realtors. Resale prices fell 13 percent from a year earlier, the biggest collapse since the Great Depression of the 1930s.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose to 1,245.7, the highest level since 2003, from the prior week’s 1,245.4. The group’s purchase gauge climbed 1.4 percent and the refinancing measure fell 0.4 percent.

The S&P homebuilder index fell 0.2 percent at 10:39 a.m. in New York Stock Exchange composite trading after earlier dropping as much as 2.3 percent. The measure is down 34 percent this year.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

Last Updated: December 31, 2008 12:22 EST