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Mortgage applications in the U.S. jumped the most since March last week, as lower interest rates sparked a surge in refinancing and purchases also rose.

The Mortgage Bankers Association’s index of applications to buy a home or refinance a loan increased 17 percent to 648.3 in the week ended Sept. 4 from 554.1 a week earlier. The group’s refinancing gauge climbed 23 percent while the index of purchases was up 9.5 percent to the highest since January.

Mortgage applications increased as the average rate on a 30-year fixed home loan fell to 5.02 percent, the lowest since May. Lower prices and borrowing costs are attracting buyers and enticing homeowners to rearrange loans, helping the housing market recover as the economy pulls out of the worst recession since the Great Depression.

“You’re seeing a notable improvement in home sales driven by greater affordability and an overall brighter economic outlook,” Michelle Meyer, an economist at Barclays Capital Inc. in New York, said before the report.

The mortgage bankers’ refinancing gauge rose to 2,651.2 from 2,164.1 in the week ended Aug. 28. The purchase index increased to 304.1 from 277.6, according to today’s report.

The share of applicants seeking to refinance loans increased to 59.8 percent from 56.5 percent the prior week.

At the current rate, monthly borrowing costs for every $100,000 of a 30-year loan would be $538, or about $65 less than the same week a year earlier, when it was 6.06 percent.

Bottoming Out

The average rate on a 15-year fixed mortgage fell to 4 free credit reports.45 percent from 4.57 percent. The rate on a one-year adjustable mortgage fell to 6.69 percent from 6.71 percent.

Recent data signal the residential real estate slump is bottoming out. Pending home sales, a measure of signed agreements to buy existing homes, rose in July for a record sixth straight month, reaching the highest level since June 2007, figures from the National Association of Realtors showed last week in Washington.

“We are fairly well convinced that the bottom has been turned and therefore we are not increasing incentives or lowering prices anywhere,” Toll Brothers Inc. Chief Executive Officer Robert Toll said Aug. 27 on a conference call with investors and analysts.

The Horsham, Pennsylvania-based company, the largest U.S. builder of luxury homes, has raised prices at about 40 percent of its developments and the rest are seeing “price stability,” Toll said.

While home prices in major U.S. cities are still down compared with a year earlier, they rose in June from the prior month by the most in four years as the market started to recover, the S&P/Case-Shiller home-price index showed.

The group’s monthly index of 20 cities declined 15.4 percent in June from a year earlier, the smallest drop since April 2008.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week, covers about half of all U.S. retail residential mortgage originations.

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