NEW YORK - U.S. mortgage rates sank to or near record lows in the past week, home funding company Freddie Mac said, improving affordability in a battered U.S. housing market that is starting to gather steam.

U.S. 30-year mortgage rates dropped to match a record low set in April, while the 15-year home loan rate fell to a new all-time low, Freddie Mac said on Wednesday.

The average 30-year rate dropped 0.05 percentage point to 4.78 percent in the week ended November 25, equaling the lowest rate since Freddie Mac started tracking rates weekly in 1971.

Fifteen-year mortgage rates dipped 0.03 percentage point in the week to 4.29 percent, the lowest since Freddie Mac began tracking them weekly in 1991.

Affordability conditions just seem to be improving by the minute, said Millan L. B. Mulraine, economics strategist at TD Securities in Toronto.

The newest test of record low borrowing costs comes just as the Obama administration this month extended another key housing incentive, an $8,000 first-time homebuyer tax credit, and added a $6,500 credit aimed at current homeowners looking to move.

When you add the tax credits, the favorable mortgage rates and prices that continue to be as low as they can go, the conditions point to an upswing in activity at some point as homebuyers who are sitting on the sidelines decide to move back into the market, he added.

A year ago, the 30-year mortgage rate averaged 5.97 percent and the 15-year rate stood at 5.74 percent.

Sinking rates come as the government enters the final months of massive interventions in the financial markets aimed at cutting borrowing costs to revive housing and the economy.

The Federal Reserve is scheduled to complete more than $1.7 trillion in mortgage-related and Treasury securities purchases by March 31.

Interest rates for 30-year fixed-rate loans are currently 0.8 percentage points below this year's peak set in mid-June, which shaves roughly $100 off the monthly payments on a $200,000 mortgage, Frank Nothaft, Freddie Mac chief economist, said in a statement.

Long-term mortgage rates have fallen for four straight weeks, according to Freddie Mac.

Lenders charged an average 0.7 point in fees on the 30-year mortgage and 0.6 point on the 15-year loan, unchanged in the week.

SALES SPURT

Data this week has shown sales of new and existing homes jumped in October, surpassing forecasts, suggesting some stability after a three-year plunge into the deepest housing market downturn since the Great Depression.

New home sales rose 6.2 percent to the highest level since September 2008, the Commerce Department said on Wednesday. Sales of existing homes increased 10.1 percent to the highest in 2-1/2 years, the National Association of Realtors said on Monday.

Sales likely were bolstered by buyers rushing to beat the deadline, which at the time was November 30, to close loans and take advantage of the tax credit.

Mortgage applications to buy homes dipped as that deadline approached and have stayed low, according to data from the Mortgage Bankers Association, but are widely seen rising again now that the tax credit has been extended and broadened.

For related graphic, see link.reuters.com/jyj63g

Buyers eligible for the tax credit must sign contracts by April 30 and close on loans by June 30.

Whether the sales improvement can be sustained depends largely on whether unemployment improves from its 26-1/2 year high, most economists agree. The spike in unemployment has forced a record number of homeowners into foreclosure, with more than 3 million expected this year.

Another wave of foreclosed properties could hit the market over the next year and keep home prices from extending their recent upturn. Standard & Poor's/Case-Shiller indexes showed average prices rising in September for the fifth straight month, but at a slowing pace.

Prices have toppled roughly 30 percent on average from their peak in the middle of 2006.

We are fairly optimistic as inventory levels have been falling, Mulraine said. It is true that foreclosures will add some downside risk and will add some downward pressure to prices, but it certainly wouldn't be to the extent that we would have seen just a few months ago.

(Editing by Chizu Nomiyama)

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