US Home loan application declined last week despite the lowest borrowing rates in four months, the

Mortgage Bankers Association said in a report on Wednesday.

Demand for home mortgage dropped to a seasonally adjusted 2.8 percent in the week ended September 25 as affected by the 6.2 percent drop in demand for purchase loans and a 0.8 percent reduction in refinancing.

Borrowing costs almost reached record lows, with average 30-year rates falling 0.03 percentage point to 4.94 percent.

The 30-year fixed mortgage rates were at their the lowest since the week ended May 22, at 4.81 percent, after hitting an all-time low of 4.61 percent in March, according to the industry group.

Last year, 30-year rates averaged 6.33 percent.

Low mortgage rates, high affordability, and the government's stimulus package with an $8,000 tax credit for first-time home buyers have helped stabilize the market.

U.S. home prices improved for the third straight month in July, indicating that the housing markets may be on its way to recovery, a report issued Tuesday.

The prices for the Standard & Poor's/Case-Shiller home price index of 20 major cities rose 1.6 percent from June, the third straight month, to a reading of 143.05. They went up 1.4% in June.

Home prices were still down 13.3 percent from July 2008 but annual declines have tapered off in all 20 cities for the sixth straight month.

"The rate of annual decline in home price values continues to decelerate and we now seem to be witnessing some sustained monthly increases across many of the markets" said David Blitzer, chairman of the Index Committee at Standard & Poor's.

The index is still about 33 percent below its peak in mid-2006. When prices are falling, consumers still think they should still wait as they can buy later for less.

The 20-city index topnotch was Minneapolis with prices up 4.6 percent, the biggest gain during July. It was followed by San Francisco and Chicago with 3.3 percent and 2.7 percent respectively.

Prices in Las Vegas and Seattle are still falling where the fell 1.1 percent and 0.1 percent respectively.

Las Vegas has become the city hardest hit by foreclosures.

The Case-Shiller indexes measure the movements in home prices increases and decreases with prices in January 2000 as the base with a reading is 100; so a reading of 150 would mean that home prices increased 50 percent since the beginning of the index.

New home sales increased for the fifth straight month in August, a Commerce Department report said Wednesday. Sales of newly constructed homes rose 0.7 percent last month to a seasonally-adjusted annual rate of 429,000. That was an increase from a downwardly-revised reading of 426,000 in July.

Compared to August last year’s sales, new home sales were down 3.4 percent when the estimate stood at a 444,000 annual rate.

The estimated seasonally-adjusted inventory of new home at the end of August was 262,000, which represents a 7.3-month supply at the current sales rate.

In recent months, low mortgage rates have helped attracted buyers into the market. Though rates have rebounded slightly to 5.36 percent for a 30-year fixed mortgage, levels are still well below last year's rates, which stood at 6.32 percent in August 2008.

The housing market has also seen a boost from an $8,000 tax credit for qualified first-time home buyers. That credit is currently slated to expire December 1.

Sales of new homes in the West increased 12.1 percent to 120,000 homes, from 107,000 in July.

Activity in the South stayed flat at 224,000 units.

In the Northeast, new home sales dropped 16.3 percent to 36,000, from 43,000 in July. Midwestern sales also fell, by 5.8% to 49,000.

The median sales price of new homes fell significantly, to $195,200, from a revised $215,600 in July. The average price dropped to $256,800 in August from $273,100.

Existing home sales weakened in August, ending a four months of increases, according to a National Association of Realtors report released Thursday.

The NAR reported that the sales of previously-owned homes dropped 2.7 percent last month from July, but were up 3.4 percent from a year ago.

Sales had increased 15.2 percent in the previous four months.

The NAR report said August home sales hit a seasonally-adjusted annual rate of 5.1 million units, down from 5.24 million in July.

The fall was an unwelcomed development as the drop happened despite low mortgage rates,low home prices. "The decline demonstrates we can't take a housing rebound for granted," Lawrence Yun, NAR chief economist, in a prepared statement.

The August sold homes’ median price was just $177,700, a 12.5 percent decline compared to same month last year.

NAR's Yun said the Obama administration should extend the $8,000 tax credit it made available for qualified first-time home buyers, to help boost sales. That credit is currently slated to expire on December 1.

"With an expected rise in foreclosures over the next 12 months we need to maintain a healthy level of ready buyers to absorb the inventory," Yun said in a statement.

Despite the decrease in sales, the supply of homes on the market fell significantly in August.

Total housing inventory fell by 10.8 percent to 3.62 million existing homes for sale. That's an 8.5-month supply, down from a 9.3-month supply in July.

Regionally, the Northeast saw the smallest drop in sales with 2.2 percent decline to an annualized rate of 910,000 homes in August. Compared to last year’s rate, that was 5.8 percent higher. The median price of homes sold during the month was $241,100, down 10.5% from last year.

Sales in the West dropped 2.7 percent to a rate of 1.16 million, which was 7.4 percent higher year-over-year. Prices declined 12.2 percent since 2008 to a median of $220,500.

In the South, sales dropped 3.1 percent from July to a rate of 1.89 million but still up 1.6 percent compared to August 2008. Since that time, home prices have dropped 11 percent to $157,400.

In the Midwest, existing home sales dropped 6.6 percent from July to a rate of 1.14 million, unchanged from a year ago. The median price there was $149,900, down 10.4 percent from last year.

McLean, VA – Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.04 percent with an average 0.6 point for the week ending September 24, 2009, unchanged from last week when it averaged 5.04 percent. Last year at this time, the 30-year FRM averaged 6.09 percent.

The 15-year FRM this week averaged 4.46 percent with an average 0.6 point, down from last week when it averaged 4.47 percent. A year ago at this time, the 15-year FRM averaged 5.77 percent. This is the lowest the 15-year FRM has been since Freddie Mac started tracking it in 1991.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.51 percent this week, with an average 0.5 point, unchanged from last week when it averaged 4.51 percent. A year ago, the 5-year ARM averaged 6.02 percent.

The one-year Treasury-indexed ARM averaged 4.52 percent this week with an average 0.6 point, down from last week when it averaged 4.58 percent. At this time last year, the 1-year ARM averaged 5.03 percent.

(Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage.)

“Mortgage rates held relatively steady at three-month lows this week,” said Frank Nothaft, Freddie Mac vice president and chief economist. Correspondingly, the Mortgage Bankers Association reported that mortgage applications jumped 12.8 percent over the week of September 18th to the strongest pace since late May, boosted by refinancing activity.

“In its September 23rd policy statement, the Federal Reserve (Fed) indicated that it plans to keep its benchmark interest rate exceptionally low for an extended period. This will likely benefit consumers who opt for ARMs, because they are typically tied to shorter-term interest rates. The Fed also noted that activity in the economy and housing market has picked up and financial markets have improved.”

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

Source: FreddieMac, Primary Mortgage Market Survey® (PMMS®), www.freddiemac.com