Applications for home refinancing came roaring back last week as consumers rushed to take advantage of mortgage rates that remain historically low, an industry trade group said in Wednesday.

The Mortgage Bankers Association's (search) seasonally adjusted index of refinancing applications surged 16.6 percent to 2,253.9 in the week ended Jan. 28, more than erasing the 5.7 percent drop the prior week.

The MBA said refinancings made up 48.7 percent of all mortgage applications last week, up from 4 mortgage lender and one of the 20 largest retail mortgage lenders in the U.S., according to National Mortgage News.

The MBA said its seasonally adjusted index of overall mortgage application activity increased 7.3 percent to 706.4 in the week ended Jan. 28, after decreasing 3.6 percent in the MBA's prior week survey, driven by the increase in refinancings.

However, other economists took a more cautious view of the data.

"I wouldn't read to much into these (MBA indexes) numbers since they can be very volatile on a week-by-week basis," said Celia Chen, director of housing economics at Economy.com (search), an economic consulting firm. "Mortgage demand picked up, but it does not reverse its recent downward trend."

The increase in the index came even as fixed mortgage rates, among the most popular mortgages, rose slightly last week.

Fixed 30-year mortgage rates averaged 5.61 percent last week, excluding fees, up 3 basis points from 5.58 percent the previous week.

Mortgage rates are still at the lowest level in several months but were not enough to spur interest in home purchasing.

The MBA's purchase index, a gauge of loan requests for home purchases, edged up 0.3 percent to 440.3, marginally offsetting the 2.0 percent loss the previous week.

With the Federal Reserve (search) poised to raise short-term interest rates Wednesday afternoon and in the months ahead, mortgage rates are expected to move higher in 2005.

"The larger story, though, is where Federal Reserve policymakers will take shorter term rates and what effect that will have on the mortgage market," Quicken's Walters said.

In fact, recent housing data indicates that a slowdown in what has been one of the hottest sectors of the economy may be developing.

Earlier this week, the government reported that sales of new U.S. homes rose a smaller-than-expected 0.1 percent in December to a 1.098 million unit rate, undershooting Wall Street forecasts for a 1.20 million unit rate in the month. But, 2004 as a whole was the strongest year on record.

Lower rates on adjustable-rate mortgages may have been behind the increase in refinancing applications last week.

One-year adjustable-rate mortgage rates averaged 4.08 percent, down from 4.21 percent one week earlier. At the same time applications for adjustable-rate mortgages rose to 32.5 percent from 31.7 percent of total applications.

While it is still likely that the MBA's weekly index will rise sporadically, Economy.com's Chen said the trend will continue downward due to rising mortgage interest rates and lack of pent-up demand.