NEW YORK (Reuters) - U.S. mortgage applications rose last week, reflecting an increase in demand for home refinancing loans as interest rates trekked lower, data from an industry group showed on Wednesday.
However, demand for home purchase loans dropped, an indicator of home sales. The decrease may help gauge how the hard-hit U.S. housing market is faring this spring, the peak home buying season.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended May 15 increased 2.3 percent to 915.9.
David Adamo, CEO of Luxury Mortgage in Stamford, Connecticut, said there was a large wave of applicants when interest rates on mortgages first came down and these loans are still being worked through the production cycle.
"Although that large influx of volume has tapered somewhat, there is still very strong demand," he said.
"In the meantime, purchase transactions in general have been at a very measured pace due to the uncertainty associated with the banking sector and unemployment," he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.69 percent, down 0.07 percentage point from the previous week, but above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990.
Interest rates were well below year-ago levels of 5.90 percent.
The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world.
Low mortgage rates have and should continue to spur demand for home refinancing loans. Lower monthly payments provide a bit of relief to strapped consumers amid rising unemployment and a shrinking economy.
But there is apprehension and caution among would-be buyers, Adamo said.
"Many would-be buyers are waiting for the tides to turn before they commit to purchase a home," he said.
The MBA's seasonally adjusted purchase index fell 4.4 percent to 254.0. The index, however, came in well below its year-ago level of 352.5, a drop of 27.9 percent.
Overall mortgage applications last week were 47.3 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 6.4 percent.
WEEKLY REFINANCING ACTIVITY RISES
The Mortgage Bankers seasonally adjusted index of refinancing applications increased 4.5 percent to 4,794.4. The index was up 116.9 percent from its year-ago level of 2,210.5.
The refinance share of applications increased to 73.6 percent from 71.9 percent the previous week. The adjustable-rate mortgage share of activity increased to 2.4 percent in the latest week, up from 2.3 percent.
Fixed 15-year mortgage rates averaged 4.44 percent, down from 4.50 percent the previous week. Rates on one-year ARMs decreased to 6.38 percent from 6.41 percent.
(Editing by James Dalgleish)