The MBA’s index of mortgage application volume increased 16.4 percent last week compared to a week earlier.

The improvement came as the rates on 30-year fixed rate mortgages was below 5 percent for the third week in a row. The interest rate for 30-year fixed-rate mortgages averaged 4.89 percent last week from 4.94 percent the previous week.

The rate was at its lowest level in about five months after it bottomed out in May 2009 when 30-year rates were 4.81 percent.

The refinancing applications climbed 18.2 percent reaching the highest level since the middle of May. Purchase applications also increased 13.2 percent, the highest since January.

Experts still believed that the U.S. housing market is on the way to recovery as; home sales are getting some boost from low interest rates, affordable prices and the $8,000 government tax credits for first time home buyers.

Average rate for 15-year fixed-rate mortgages went down to 4.32 percent, the lowest rate ever recorded in the survey while the rates for one-year adjustable rate mortgages increased to 6.56 percent.