U.S. mortgage applications fell for a third straight week, dragged down by a decline in home refinancings to a 16-month low even as interest rates dipped, an industry trade group figures showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended November 25 declined 1.8 percent.

During the holiday-shortened week, borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.20 percent last week, down 0.06 percentage point from the previous week's 6.26 percent.

It was the second consecutive decline in the 30-year rate, the industry benchmark. However, the rate was substantially above its 2005 low of 5.47 percent in late June.

Analysts and economists say the steady climb in interest rates in recent months may have finally starting cooling the U.S. housing sector. Lower loan demand, slower home price appreciation and growing inventory in recent months has many observers declaring a slowdown has arrived.

The MBAs seasonally adjusted index of refinancing applications dropped 6.3 percent to 1,484.3, falling for the sixth straight week, and ebbing to its lowest level since late June 2004.

Last week's rise in the seasonally adjusted MBA's purchase mortgage index, however, by 0.8 percent to 476.2, nearly erased the previous week's 1.2 percent loss, and may indicate there is still some momentum in the sector.

The mixed picture on the housing sector was reflected in October housing sales figures.

Sales of existing U.S. homes slowed in October and the inventory of unsold houses rose to the highest level in nearly 20 years, the National Association of Realtors said Monday in a report that added evidence of the end of the U.S. housing boom.

Sales of previously owned homes fell 2.7 percent from September's upwardly revised 7.29 million unit annual pace, and the drop would have been even larger if not for a surge in home-buying linked to Hurricane Katrina, it said.

However, sales of new U.S. homes shot up unexpectedly in October, climbing 13 percent to hit a record pace, according to the Commerce Department on Tuesday at odds with other signs of a slowdown in the long-hot housing market.

Fixed 15-year mortgage rates averaged 5.72 percent, down from 5.83 percent the previous week. Rates on one-year adjustable-rate mortgages decreased to 5.39 percent from 5.41 percent.

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

But, with interest rates rising steadily over the past few months, more consumers chose last week to lock in a fixed-rate instead of floating rate.

The ARM share of activity fell to 33 percent of total applications last week from 33.2 percent the previous week. ARM demand reached a 2005 high of 36.6 percent in late March.

Refinancings decreased as a percentage of all mortgage applications, falling to 39.1 percent last week from 39.9 percent, the MBA said.

The MBA's survey covers about 50 percent of all U.S. retail residential mortgage originations. Respondents include mortgage bankers, commercial banks and thrifts.