Editor’s note: This story has been updated.

Mortgage rates eased this week, as expectations for rapid economic growth were tempered by continued worries about the impacts of the European debt crisis and the potential impact of government spending cuts.

Rates on 30-year fixed-rate mortgages averaged 3.54 percent for the week ending March 21, down from 3.63 percent last week and 4.08 percent a year ago, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey. Rates on 30-year fixed-rate loans hit a low in Freddie Mac records dating to 1971 of 3.31 percent during the week ending Nov. 21, 2012.

For 15-year fixed-rate mortgages, rates averaged 2.72 percent, down from 2.79 percent last week and 3.30 percent a year ago. Rates on 15-year fixed-rate loans hit a low in Freddie Mac records dating to 1991 of 2.63 percent during the week ending Nov. 21, 2012.

For five-year Treasury-indexed hybrid-rate mortgage (ARM) loans, rates averaged 2.61 percent, the same as last week and down from 2.96 percent last year. The average rate for the week ending today ties an all-time low in Freddie Mac records dating to 2005 last seen during the week ending Feb. 28.

Rates on one-year Treasury-indexed ARM loans averaged 2.63 percent, virtually unchanged from last week, but down from 2.84 percent a year ago. Rates on one-year ARM loans hit a low in records dating to 1984 of 2.52 percent during the week ending Dec. 20, 2012.

As mortgage rates increased last week, applications for purchase loans fell a seasonally adjusted 4 percent during the week ending March 15 from a week earlier, a separate survey by the Mortgage Bankers Association found. Purchase loan demand was up 6 percent compared to the same time last year.

Rates on fixed-rate mortgage loans were up sharply last week in the wake of reports that suggested economic growth is accelerating. That prompted fears that mortgage-backed securities (MBS) that fund most mortgage loans would fall out of favor with investors, and that the Federal Reserve would scale back the pace of MBS purchases, which currently total $40 billion a month.

Although the Fed was not expected to make any immediate changes to its "quantitative easing" program — which also includes monthly purchases of $45 billion in long-term Treasurys — observers are keeping a close eye on the Fed’s economic forecasts for an indication of whether adjustments will come sooner rather than later.  

In a forecast issued last month, economists at Fannie Mae said they expected rates on 30-year fixed-rate mortgages to climb above 4 percent in the fourth quarter of 2013, and average 4.4 percent in 2014. Fannie Mae economists based their forecast in part on expectations that the Fed may wind down its quantitative easing purchases this year, rather than continuing the program into 2014.

In a statement Wednesday, the Federal Open Market Committee said it continues to see "downside risks" to the economic outlook, and expects only "moderate" economic growth and a gradual decline in unemployment.

"Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated," the committee said.

While household spending, business investment, and the housing sector have all strengthened further, "fiscal policy has become somewhat more restrictive," the committee said, alluding to federal spending cuts brought about by the sequester.

Critics of quantitative easing say the bond-buying operation may overheat the economy and kindle inflation. But the committee said Wednesday that it expects inflation to exceed its longer-run goal of 2 percent by no more than half a percentage point in the next year or two, and that its longer-term inflation expectations "continue to be well anchored."

Before the Federal Open Market Committee’s meeting, worries about the prospects for a controversial bailout plan for the island nation of Cyprus stirred up renewed about the potential impact of the European debt crisis on the global economy, undermining U.S. stock prices.

When stocks look risky to investors, safe bets like Treasurys and MBS come back into fashion, pushing yields down.

In a forecast issued Wednesday, economists at Freddie Mac said they expect rates on 30-year fixed-rate loans will remain below 4 percent this year.

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