Applications for U.S. loans to buy homes rose slightly last week amid a marginal drop in U.S. mortgage rates, an industry group said Wednesday.

The Mortgage Bankers Association (search) said its seasonally adjusted market index, a measure of weekly mortgage activity, rose for the week ending Junley, chief economist at RBS Greenwich Capital Markets (search) on Tuesday before the report was released.

The Washington mortgage banking trade group's seasonally adjusted refinancing index fell by 1.7 percent to 1,454.6 from the previous week's 1,479.4.

Average 30-year mortgage rates, excluding fees, fell by 13 basis points to 6.21 percent.

"Even though rates are higher, they are still low by historical standards," said Stanley. "Until mortgage rates rise to a level that is an outright discouragement to buy, you will see healthy housing demand."

Market observers believe that as fixed-rate mortgages rise some of the demand for loans to buy homes is being supported by adjustable rate home loans that, initially, offer lower monthly mortgage rates.

According to HSH Associates (search), a publisher of mortgage information based in Pompton Plains, rates for one-year adjustable rate mortgages (ARMs) in the June 18 week were at 4.35 percent compared with 5.86 percent for 15-year fixed rate mortgages and with 6.46 percent for 30-year fixed rate mortgages.

"In the last year, we are seeing a sharper decline in fixed-rate mortgages than adjustable rate mortgages," said Drew Matus, economist at Lehman Brothers Inc. "Purchases are still strong," he said adding that ARMs "allow people to keep their aspirations for whatever home they want."

"Right now there is a remarkable amount of people who still chose the adjustable rate path. Part of that is because of the perception that rates will remain relatively low," said Low.

According to the MBA, adjustable rate home loans accounted for 33.5 percent of all mortgage loans processed last week.