NEW YORK - U.S. mortgage applications rose for a second straight week, with demand for home refinancing loans rising to its highest level since early June, data from an industry group showed on Wednesday.

Applications for loans to buy a home, an early indicator of sales, rose slightly, but nevertheless gained for a fourth consecutive week. The trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Aug 21 increased 7.5 percent to 566.4.

Jim Gillespie, president and chief executive officer, Coldwell Banker Real Estate LLC, in an interview with Reuters, said that while recent data on home sales and prices point to stabilization, certain consumers are missing from the market.

For the market to stabilize permanently we are missing one key element and that is the move-up buyer, said Gillespie, who is based in Parsippany, New Jersey.

The move-up buyer is a homeowner who chooses to move to a larger home due to a lifestyle change such as a marriage, an addition to their home, a job promotion or a job transfer, he said.

Once that move-up buyer is back in the market then we will see a true long-term stabilization of the market, he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.24 percent, up 0.09 percentage point from the previous week and above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990.

Interest rates, however, were well below year-ago levels of 6.44 percent.

The MBA's seasonally adjusted purchase index rose 1.0 percent to 280.4.

Low mortgage rates, high affordability, and the government's $8,000 tax credit, part of the stimulus bill, for first-time home buyers have helped pave the way for stabilization.

But with the tax credit set to expire in several months and distressed properties making up a high proportion of sales, the recent flurry of activity masks uncertainty about the long-term outlook.

Right now the market has investors taking advantage of the great deals out there, mostly distressed properties in foreclosure or selling as short sales and first-time home buyers who are taking advantage of the first-time home buyers tax credit, Gillespie said.

If that tax credit expires the end of November then the real estate market recovery will probably stall, he said.

Gillespie said what is truly needed is a $15,000 tax credit for all buyers of primary residences for a period of one year with no income caps so all levels of buyers have an incentive to get back into the market.

A $15,000 tax credit will go a long way to helping us out of our economic situation today, he said.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 3.5 percent.

REFINANCING JUMPS

The Mortgage Bankers seasonally adjusted index of refinancing applications increased 12.7 percent to 2,233.5, the highest level since the week ended June 5.

The refinance share of applications increased to 56.5 percent from 53.3 percent the previous week, but remained significantly lower than the peak of 85.3 percent in the week ended January 9. The adjustable-rate mortgage share of activity remained unchanged from the previous week at 6.5 percent.

The U.S. housing market has suffered the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world.

The housing market, however, has been showing signs of stabilization, with sales rising and home price declines moderating in many regions of the country. In fact, home prices in some regions have risen.

Some analysts, however, say prices may fall again, with a wave of more foreclosures in the pipeline.

Fixed 15-year mortgage rates averaged 4.58 percent, up from 4.52 percent the previous week. Rates on one-year ARMs increased to 6.74 percent from 6.66 percent.

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