NEW YORK - U.S. mortgage applications rose for the first time in four weeks, reflecting a jump in demand for home refinancing loans as interest rates on 30-year loans dropped below 5 percent, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said rates on 30-year fixed-rate mortgages, the most widely used loan, fell below 5 percent for the first time in four weeks. The 5 percent level is something of a psychological tipping point, typically sparking home loan refinancing activity.

The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week to October 30 increased 8.2 percent to 608.3.

The hard-hit U.S. housing market, a primary driver of the worst U.S. recession since the 1930s, has been showing signs of stabilization after a three-year slump, but remains highly vulnerable to setbacks.

Ronald Temple, portfolio manager and co-director of research at Lazard Asset Management in New York, believes there has been a false sense of security surrounding the state of the U.S. housing market.

There is a consensus out there that the worst is over but they are discounting a little too much the benefit we've gotten from the government's intervention, he said.

Temple said a flood of foreclosures in the pipeline and higher interest rates on the horizon will likely act as a headwind from here.

We may be headed back to rockier times as it relates to housing, he said.

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

The National Association of Realtors said pending sales of previously owned U.S. homes unexpectedly rose in September to their highest level in nearly three years ahead of the November 30 expiration of the tax credit. However, it appears likely that the tax credit will be extended.

The U.S. House of Representatives is expected to back a Senate plan to extend a popular homebuying tax credit through April and also expand its scope, House Majority Leader Steny Hoyer said on Tuesday.

With distressed properties making up a high proportion of sales, the recent uptick in activity may mask uncertainty about the long-term outlook. The Federal Reserve is focused on keeping mortgage rates low, but that should wane in the months ahead.

We had a nice respite but there is a little too much complacency out there and we may have more downside ahead of us, Temple said.

We should not get complacent because short-term indicators look good, he said.

The MBA said borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.97 percent, down 0.07 percentage point from the previous week. The rate remained above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990. Nevertheless, interest rates were well below the year-ago level of 6.47 percent.

Low interest rates did not impact applications to buy a home, a tentative early indicator of sales. The MBA's seasonally adjusted purchase index fell 1.8 percent to 250.3.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 5.5 percent.

REFINANCING JUMPS

The Mortgage Bankers seasonally adjusted index of refinancing applications increased 14.5 percent to 2,693.7.

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. Home price declines have been moderating in many regions of the country and in some areas have risen.

Some analysts, however, say prices may fall again, with a new wave of foreclosures in the pipeline that is viewed as one of the largest obstacles to a recovery.

Fixed 15-year mortgage rates averaged 4.33 percent, down from 4.53 percent the previous week. Rates on one-year ARMs increased to 6.83 percent from 6.79 percent.

(Additional Reporting by Lucia Mutikani, Corbett B. Daly and Donna Smith; Editing by Diane Craft)

Mortgage