NEW YORK (Reuters) - Applications for U.S. home loans fell for a third straight week as average mortgage rates hit their highest level this year, although demand for purchase loans increased, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 2.5 percent in the week ended August 23, after sliding 4.6 percent the prior week.
The decline came as 30-year mortgage rates rose 12 basis points to 4.80 percent, the highest they have been so far this year, according to MBA data.
The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.
Borrowing costs have climbed by more than a percentage point since late May on the view that the Federal Reserve will soon reduce its monthly bond purchases, which have kept a ceiling on rates.
The Fed began the bond purchasing program nearly a year ago to boost a sluggish recovery in the U.S. economy.
Higher rates have dissuaded borrowers from refinancing existing home loans. The refinance index fell 5.4 percent last week, and the refinance share of total mortgage activity slid to 60 percent, the lowest since April of 2011.
The gauge of loan requests for home purchases, a leading indicator of home sales, held up better, rising 2.4 percent.
Housing has been a bright spot in the U.S. recovery, with prices rising steadily since early 2012. But economists expect the pace of that increase to slow as the year winds down.
A separate report last week showed sales of new single-family homes fell sharply in July to their lowest level in nine months.
That has injected some uncertainty into the debate about when the Fed will start slowing its stimulus. Markets largely expect the Fed to pull back next month, though many analysts say the U.S. central bank will think twice about higher long-term interest rates if there is evidence the rates are hurting housing.
Still, rates remain low by historical standards and most economists do not expect the higher costs to end the recovery altogether. In the short-term, it could also spur potential buyers to act before rates rise further.
(Reporting by Steven C. Johnson; Editing by Leslie Adler)