Interest rates for a 30-year fixed mortgage fell to their lowest level of the year this week, a development local mortgage professionals say can only help a housing industry which recently lost federal tax incentives that had been driving sales.

Mortgage finance company Freddie Mac says the average rate sank to 4.72 percent, down from 4.79 percent last week, and just above the record of 4.71 set last December. The average rate on a 15-year fixed-rate mortgage hit 4.17 percent, down from 4.2 percent last week and the lowest on record dating back to August 1991.

Investors, wary of the European debt crisis and the turbulent stock market, have shifted money into the safety of U.S. Treasury bonds. That has pushed down the interest rate, or yield, on U.S. Treasury debt. Fixed mortgage rates tend to track that yield.

Though mortgage rates are at attractive levels, the national housing market has seen a dip in activity with the expiration of tax credits, according to the national index of the Mortgage Bankers Association. Those applying for a mortgage to buy a home fell to the lowest level in 13 years last week and was down 35 percent from a month ago, the index said.

That's a sign the market is struggling without a tax credit of up to $8,000 for first-time buyers and up to $6,500 for qualified repeat buyers. Those credits expired at the end of April. (Homes in a purchase contract by April 30 have until June 30 to close escrow to qualify).

"I haven't seen a drop off," in purchase home loans, said Cindy Romero-Lowary, a loan officer with the Pleasanton office of Cherry Creek Mortgage. Low prices for homes are a bigger factor for buying than today's low-interest rates, she said. "People are going out and purchasing homes regardless of what the interest rate is," she said.

Refinancing activity has also slowed, with the national index showing refinancing activity falling 14.3 percent from the previous week.

In the Bay Area, stabilizing home prices have made it easier for qualified borrowers to obtain refinancing compared to six to nine months ago, said Karen Mayfield, Bay Area regional manager for mortgage banking at San Francisco-based Bank of the West.

"People who did not have enough equity to qualify in the fall of 2009 may now qualify. Prices have stabilized and in some cases increased," she said.

The government has taken massive steps to help the housing market recover. A campaign by the Federal Reserve to reduce borrowing costs for consumers pushed rates down to extraordinarily low levels last year. Rates were expected to rise after the program ended this spring, but have fallen instead over the past two months.

"Greece happened,' said Mayfield, referring to that country's financial problems that led to the European debt crisis that has helped keep U.S. interest rates low.

More recently, the latest report on the U.S. employment picture showed that few private-sector jobs are being created. That made investors nervous about the stock market and pushed up bond prices, which pulls down rates.

"Following a relatively weak employment report, bond yields fell this week and mortgage rates followed," said Frank Nothaft, Freddie Mac's chief economist.

Associated Press contributed to this report. Contact Eve Mitchell at 925-952-2690