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Mortgage applications rise, fueled by refinancing and purchases

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WAHINGTON -- Mortgage applications last week in the United States rose to the highest level in 10 months, as lower mortgage rates sparked refinancing and purchases, an industry report showed today.

The Mortgage Bankers Association's index of applications rose 8.1 percent to 647.6 from 599 the prior week, the highest since the week ended Jan. 20. The group's index of refinancing rose 14 percent to 1989.7, while its gauge of home purchases gained 4.9 percent to 426.6, the highest since May.

The average rate on a 30-year fixed mortgage dropped to an almost 14-month low last week and home prices haven't increased as much as in recent years, making homes more affordable and helping to slow the slide in sales. The report bears out Federal Reserve forecasts that the housing slump won't choke off the five-year economic expansion.

"The worst of the housing correction may be behind us already," said Bart Melek, a senior economist at BMO Capital Markets in Toronto.

The mortgage bankers group's refinancing gauge, which has gained in three of the past five weeks, is still nearly 80 percent off its peak reached in May 2003. The purchase index has increased in four of the last five weeks and remains 23 percent off its June 2005 high.

"The refinance data seems to be pointing towards at least a near-term bottom in activity," Drew Matus, an economist at Lehman Brothers Holdings Inc. (NYSE: LEH) in New York, said before the report. "Evidence suggests that people are taking advantage of lower interest rates."

The average rate on a 30-year fixed mortgage fell from 6.13 percent the prior week to 5.98 percent last week, the lowest since October 2005. The rate has fallen from a high this year of 6.86 percent reached in June.

At last week's rate, the monthly principal and interest payment for each $100,000 borrowed would be $598.27. A year ago, when the rate was 6.32 percent, the payment was $620.28.

Buyers are turning away from adjustable-rate mortgages as rates on 30-year fixed loans drop. The average rate on a one-year adjustable mortgage fell to 5.79 percent from 5.87 percent. Adjustable-rate mortgages accounted for 23.9 percent of all applications last week, the lowest in more than three years.

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