May 20 (Bloomberg) -- Mortgage applications in the U.S. gained last week, helped by lower rates that enticed homeowners to seek refinancing.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose 2.3 percent to 915.9 in the week ended May 15, from 895.6 the week before. The group’s refinancing gauge increased 4.5 percent.

The average rate on a 30-year fixed mortgage fell for the second straight week and was near the record low reached at the end of March. Lower borrowing costs, supported by an increase in Federal Reserve purchases of longer-term securities, and reduced prices are boosting interest in refinancing and purchases of homes and may help settle the slumping housing market.

“The broader housing market certainly looks to be stabilizing,” Zach Pandl, an economist at Nomura Securities International Inc. in New York, said before the report. “Mortgage applications responded very well to the Fed’s purchases of Treasuries and mortgage-backed securities.”

The mortgage bankers’ refinancing gauge increased to 4,794.4, from 4,588.6 the previous week. The purchase index fell 4.4 percent to 254 last week, from 265.7 the week before.

The share of applicants seeking to refinance loans rose to 73.6 percent of total applications last week from 71.9 percent.

Borrowing Costs

The average rate on a 30-year fixed-rate loan fell to 4.69 percent from 4.76 percent the prior week. The rate was 4.61 percent in late March, the lowest level since the mortgage bankers group began records in 1990.

At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be about $518.04, or $74 less than the same week a year earlier, when the rate was 5.89 percent.

The average rate on a 15-year fixed mortgage fell to 4.44 percent, from 4.50 percent the prior week. The rate on a one- year adjustable mortgage fell to 6.38 percent from 6.41 percent.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week, covers about half of all U.S. retail residential mortgage originations.

Housing starts in the U.S. unexpectedly fell to a record- low 458,000 annual rate in April, the Commerce Department said yesterday, as a plunge in condominiums and apartment buildings overwhelmed the second straight gain in starts on single-family dwellings. Building permits, a sign of future construction, also dropped to an all-time low.

“The housing market remains turbulent,” Centex Corp. Chief Executive Officer Timothy Eller said May 6 on a conference call with analysts. “There won’t be a lot of builders remaining.”

Builders Struggling

Centex and Pulte Homes Inc., the U.S. homebuilders that plan to combine this year, both fell 8 percent in New York trading that day after reporting quarterly losses that exceeded analysts’ estimates and taking $762 million in writedowns.

Still, confidence among U.S. homebuilders in May increased to the highest level since September, capping the first back-to- back gain since February 2008, the National Association of Home Builders/Wells Fargo index showed May 18. A reading below 50 means most respondents view conditions as poor.

Housing data in recent weeks have shown signs of stabilization. Foreclosure-driven sales of existing homes, which in January reached the lowest since records began in 1990, have held within a narrow range centered on a 4.6 million annual rate for five months. Sales of new houses, while more than 70 percent below their 2005 peaks, have bounced from a January record low.

‘Subdued’ Growth

The U.S. economy should return to “healthy growth” by the middle of next year following a “subdued” early period of expansion, Minneapolis Federal Reserve Bank President Gary Stern said yesterday in a speech. Nevertheless, while credit market conditions “generally have improved over the past several months, perceptible strains persist,” he said.

Federal Deposit Insurance Corp. Chairman Sheila Bair said May 12 that the housing slump will remain a drag on the economy and it may take “another year or two for the market to recover.” She also said major U.S. banks “managed to turn” a first-quarter profit and are starting to meet government demands to raise $74.6 billion as a cushion against losses through 2010.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

Last Updated: May 20, 2009 07:00 EDT