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Mortgage applications up last week

WASHINGTON -- Mortgage applications in the U.S. rose for the first time in three weeks, suggesting the slowdown in the housing market is gradual.

The Mortgage Bankers Association's index of applications to buy a home or refinance an existing loan increased 5.9 percent to 561 from 529.6 the prior week. Purchases and refinancing rebounded from a week earlier.

Job growth and rising incomes may allow the housing industry to avert a collapse after a five-year boom even as interest rates stay high, economists said. The average rate on a 30-year mortgage last week was 6.8 percent, close to the four- year high of 6.86 percent in the previous week.

"What we're seeing is a housing slowdown, but nothing that's overly worrisome," said Bill Mulvihill, an economist at First Trust Advisors LP in Lisle, Ill. "Interest rates are rising, and that's certainly taken away the froth from housing."

The index of purchase applications rose 6.5 percent to 414.2 from 389 the prior week, when it slumped to the lowest level in more than two years. The measure has fallen 22 percent since a peak in June 2005.

Refinancing, which was a source of cash for consumers to spend on goods and services the past few years, also is losing steam, the report showed. The MBA's gauge of refinancing rose 5 percent to 1423.9 last week from 1356. It's down 49 percent from the same time in 2006.

Refinancing's share of all loan applications slipped to 35 percent last week, from 35.3 percent the prior week.

The Mortgage Bankers Association's survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage originations.

Borrowing costs have increased as the Federal Reserve raised interest rates. Central bankers lifted their benchmark rate to 5.25 percent on June 29, the 17th straight increase since June 2004.

"Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices," the Fed said in a statement after last week's rate increase.

The real estate market has contributed as much as half the U.S. economy's growth since 2001, according to Merrill Lynch & Co. estimates. This year, it may weigh on growth as mortgage rates creep up and home prices fail to increase as fast as in prior years, economists said.

The average 30-year fixed rate has risen 1.22 basis points from the same time in 2005. A basis point is 0.01 percentage point.

At last week's average 30-year fixed rate, monthly principal and interest costs for each $100,000 of a loan would be about $652. That's higher than the $573 payment a borrower would've made a year ago, when the average rate was 5.58 percent.

The average rate on a 15-year fixed mortgage fell to 6.41 percent last week from 6.49 percent a week earlier, the report showed. The one-year adjustable mortgage rate increased to 6.39 percent from 6.35 percent.

Homebuyer affordability has slumped because of higher rates and prices. The National Association of Realtors said on June 30 that its May affordability index dropped to the lowest level since July 1989.

Real estate agents are offering incentives such as country club memberships to attract homebuyers.

Housing is moving "from more of a seller's market to a buyer's market," Frank Nothaft, chief economist at Freddie Mac (NYSE: FRE), said in an interview. "We're seeing somewhat lower levels of home sales, and moderation and cooling in house-price appreciation."

Freddie Mac expects the price of a typical U.S. home, which jumped 13 percent to 14 percent in 2005, to rise this year by a "much more moderate" 6 percent to 7 percent, Nothaft said. McLean, Va.-based Freddie Mac is the second-biggest purchaser of U.S. mortgages behind Fannie Mae (NYSE: FNM).

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