Demand for loans to buy U.S. homes shriveled to a 13-year low last week, following the expiration of federal tax credits, while near-record low mortgage rates stoked refinancing, the Mortgage Bankers Association said on Wednesday.

Mortgage purchase applications sank 27.1 percent to the lowest level since May 1997 in the absence of the popular government support, the group said. U.S. housing groped for footing after more than a year of homebuyer tax credits worth up to $8,000 expired on April 30.

Requests for home purchase loans have fallen almost 20 percent over the past month despite low borrowing costs.

It's disturbing, said John Canally, economist at LPL Financial in Boston.

It seems that every other data point for housing is pretty good -- high affordability, low interest rates, relatively low inventory, home prices are up -- so I'm leaning toward the hangover from the tax credit but I'm going to need to see a couple of more weeks of data.

Overall loan requests were down 1.5 percent, on a seasonally adjusted basis, in the week ended May 14, cushioned by a 14.5 percent jump in mortgage refinancing applications as home loan rates neared historic lows.

Average 30-year mortgage rates fell 0.13 percentage point last week to 4.83 percent, the lowest since last November, the MBA said. The record low was 4.61 percent in March 2009, based on the group's survey, which has been conducted since 1990.

Refinancing applications jumped to a nine-week high and accounted for about 68 percent of all applications last week.

But buyers took a low profile after rushing en masse to take advantage of the tax incentive.

The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season, Michael Fratantoni, the industry group's vice president of research and economics, said in a statement.

The MBA separately reported that total U.S. home loans that are late paying or in foreclosure eased in the first quarter but remained near record highs, largely because the country's unemployment rate remains elevated.

One out of seven U.S. households with a mortgage ended the first quarter late on payments or in the foreclosure process.

With the tax credits gone, home shoppers will take more time to find the right property, said Marc Demetriou, branch manager/mortgage consultant at Residential Home Funding Corp in Bloomingdale, New Jersey.

Unemployment is definitely still an issue and inventory is still an issue, but it's definitely a buyer's market, he said. However, people that were serious about buying worked very hard and spent a lot of time and effort to find the right house to get in for April 30, when the tax credit expired,

U.S. borrowers have gotten a hand from Europe, on worry that roughly $1 trillion in emergency funding might not be enough to stabilize euro zone debt markets. Investors have fled for the safest securities, slicing the U.S. Treasury yields that are used as a peg for mortgage rates.

Low borrowing costs and stabilizing home prices are being offset by the near double-digit U.S. unemployment rate and a looming supply of foreclosed properties yet to hit the market. The worst of the housing crisis is over but recovery will be long and slow, most economists agree.

(Editing by Andrea Ricci)

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