U.S. mortgage applications fell for the first time in four weeks as demand for home purchase loans dropped to the lowest level in nearly three years, an industry trade group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, for the week ended Aug. 25 decreased 0.9 percent to 556.5 from the previous week's 561.5.

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Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.39 percent, up 0.01 percentage point from the previous week when they sank to their lowest since March. Interest rates were above year-ago levels of 5.73 percent but below a four-year high of 6.86 percent touched in June.

The MBA's seasonally adjusted purchase mortgage index fell 1.6 percent to 375.9, its lowest since November 2003. The purchase index, which is considered a timely gauge of U.S. home sales, was substantially below its year-ago level of 470.6.

The group's seasonally adjusted index of refinancing applications increased slightly to 1,609.2 from 1,608.5. A year earlier the index stood at 2,187.8.

The refinance share of applications increased to 41.5 percent from 40.6 percent the previous week.

Fixed 15-year mortgage rates averaged 6.06 percent, up from 6.04 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.97 percent from 5.91 percent. The ARM share of activity increased to 26.8 percent of total applications from 26.4 percent the previous week.

After historically low mortgage rates fueled a five-year housing boom, a deluge of recent data showing a surge in the number of homes for sale and dwindling demand signals the once-robust market is cooling, industry analysts say.

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

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