Applications for home mortgages fell last week, its third consecutive drop, as refinancing waned and interest rates reached four-month highs, industry group figures showed Wednesday.

The Mortgage Bankers Association (search) said its seasonally adjusted index of mortgage application activity fell 0.9 percent to 745.0 in the week ended Aug. 5, adding to the previous week's 0.3 percent loss. The four-week moving average was down 1.5 percent to 763.1 from 774.9.

Fixed 30-year mortgage rates (search), the benchmark for the mortgage industry, averaged 5.91 percent last week, excluding fees, up 8 basis points, or 0.08 of a percentage point, from 5.83 percent the previous week.

It was also the highest rate since the week ended April 8, when 30-year mortgages hit 5.95 percent.

The 30-year rate is still below the 2005 high of 6.08 percent reached in late March. But in a break with recent trends, the rate is now higher than the 5.80 percent level of early August 2004.

Last week's slide in mortgage applications was in the refinancing sector. The MBA's seasonally adjusted index of refinancing applications fell for a third consecutive week, dropping 3.3 percent to 2,176.5 after falling 3.0 percent the prior week.

Purchasing activity, however, rose for a second consecutive week.

The MBA's purchase index, a gauge of loan requests for home purchases, rose 0.9 percent to 498.8, adding to the previous week's 1.9 percent gain.

Fixed 15-year mortgage rates last week averaged 5.49 percent, up 8 basis points from 5.41 percent the previous week.

Rates on one-year adjustable-rate mortgages, or ARMs, rose to 4.88 percent last week from 4.78 percent one week earlier.

Comparatively low mortgage rates have buoyed the housing sector for more than four years. Long-term rates have remained relatively low, even though the Federal Reserve (search) has raised its target for short-term interest rates 10 times since June 2004.

Indeed, over the past two months, some economists have boosted their 2005 targets and forecast another record year for sales and construction.

But with mortgages rates moving higher, some economists see home sales and construction edging off record peaks, though how soon that will happen is not clear.

"Obviously, the impact on the consumer is a great one," said Ellen Bitton, president and chief executive officer at Park Avenue Mortgage Group, Inc., based in New York.

"Coupled with higher oil prices, although real estate prices have surged up until very recently, there will be a cooling down," she said.

The National Association of Realtors' (search) chief economist, David Lereah, in a monthly forecast on Tuesday nudged his estimates higher for sales of previously owned and new homes in 2005 but said sales should begin to ease off record levels during the second half of the year.

Freddie Mac's (FRE) chief economist, Frank Nothaft, in his monthly outlook earlier this week said higher interest rates will eventually dampen housing demand. Nevertheless, he lifted his estimates for home sales and construction in 2005.

On a four-week moving average, the refinancing index dropped 3.9 percent to 2341.3 from 2,435.8.

Refinancings last week also decreased as a percentage of all mortgage applications, falling to 40.9 percent from 41.7 percent.

On a four-week-moving average, the purchase index is up 0.5 percent to 491.8 from 489.3. In early June the purchase index reached a record high of 529.3.

After falling during the previous week, demand for adjustable-rate mortgages rose in the week ended Aug 5, the MBA said. The ARM share of activity stood at 29.7 percent of total applications last week, up from 28.5 percent the previous week.

With ARMs, low initial payments allow borrowers to buy homes they may not be able to afford with a fixed-rate loan.

The MBA's survey covers about 50 percent of all U.S. retail residential mortgage originations. It has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.