U.S. mortgage applications rose the first time in three weeks, fueled by a jump in demand for refinancing and home purchase loans as interest rates dropped, an industry group said on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended May 2 soared 15.6 percent to 655.4.
While the index often rises or falls more than 10 percent, one analyst said last week's jump may indicate buyer's have renewed interest in the hard-hit housing market, which is entering the peak of the buying season.
"The U.S. housing market is still in decline but the speed of decline seems to have decelerated on some of the key indicators," Torsten Slok, senior economist at Deutsche Bank in New York, said.
"Given the current speed of decline in house prices we continue to expect they will start stabilizing in early 2009," he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.91 percent, down 0.10 percentage point from the previous week.
Interest rates were also below year-ago levels of 6.10 percent.
The MBA's seasonally adjusted purchase index climbed 12.1 percent to 381.3. The index remained 13.0 percent below its year-ago level of 438.3.
The index rose the first time in four weeks.
A decline in demand for purchase applications is consistent with the continued drop in home sales, according to Michelle Meyer, an economist at Lehman Brothers in New York.
"The decline in mortgage rates, if sustained, should improve affordability and hopefully encourage home purchases," she said in commentary published Wednesday.
Overall mortgage applications last week were 3.7 percent below their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 2.6 percent to 650.8.
The group's seasonally adjusted index of refinancing applications surged 19.3 percent to 2,273.8, rising the first time in three weeks.
The index was up 7.5 percent from its year-ago level of 2,115.2.
Consumers seeking to refinance their existing home loans tend to be highly sensitive to shifts in interest rates.
The refinance share of applications increased to 47.1 percent from 45.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.8 percent, up from 5.9 percent the previous week.
Fixed 15-year mortgage rates averaged 5.49 percent, down from 5.53 percent the previous week. Rates on one-year ARMs dipped to 6.77 percent from 6.86 percent.
A separate report on Wednesday showed sales of previously owned homes fell 1.0 percentin March, in line with economists' forecasts.
The National Association of Realtors Pending Home Sales Index, based on contracts signed in March, fell 1 percent and was 20.1 percent lower than the March 2007 index.
The index of signed contracts, not those closed, is considered a good indicator of future home sales, and is influenced by changes in mortgage rates.