Americans applied to buy homes at the highest pace last week since May, but more than 8 of every 10 loan requests was for a refinancing, Mortgage Bankers Association data show on Wednesday.
August employment and July pending home sales surpassed forecasts and could portend a rise in deeply depressed home sales, economists said.
Still, about 82 percent of all loans last week were for refinancings rather than purchases, with unemployment still high at 9.6 percent and the U.S. housing market groping for a bottom.
Total loan requests fell by a seasonally adjusted 1.5 percent last week, as refi demand dropped 3.1 percent from the highest levels since May 2009. Home purchase applications rose 6.3 percent.
Home buying demand climbed back to levels seen in late May but stayed almost 40 percent lower than a year ago, said Michael Fratantoni, MBA's vice president of research and economics.
"On the other hand, refinance volume dropped last week for the first time in six weeks, but the level of applications to refinance remains close to recent highs, as historically low mortgage rates continue to draw borrowers into the market," he said in a statement.
Fixed 30-year mortgage rates hovered just above the lowest rates since the MBA started record keeping in 1990, rising 0.07 percentage point last week to 4.50 percent.
Home buyer tax credits that ended in April pulled summer buyers into spring months and applications swooned once the incentive ceased.
"Low mortgage rates cannot cure all that ails the housing market," said Greg McBride, senior financial analyst at Bankrate Inc. in North Palm Beach, Florida.
"The job market does not inspire much confidence, buyers no longer have the incentive of the tax credit, people continue to have trouble selling their existing homes and some believe prices have further to fall," he said.
Unemployment or underemployment, lack of home equity in existing houses and a shortage of money for a downpayment remain among the main impediments to home buying.
An owner refinancing a $300,000 30-year mortgage taken out in June 2009 at 6 percent, meantime, can cut her monthly payment by almost $280 by going to a 4 1/2 percent loan, according to Bankrate.
"At the household level, that's additional spending power and breathing room in the monthly budget," said McBride. "But refinancing is encumbered by upside down and unemployed homeowners."
Lower borrowing costs should translate into more consumer spending but the economic impact would be greater if more home owners met the criteria.
"Lower interest rates have spurred another round of refinancing activity and that should bode well for consumption spending," said Michael Gapen, senior U.S. economist at Barclays Capital in New York.
"Longer term, however, the housing market still faces significant headwinds and one of those main headwinds is the fact that not every homeowner can access these lower mortgage rates," he added.
Barclays looks for the housing market to find its floor in the third quarter and start to rebound modestly by the first quarter of next year. But prices could still erode by up to 7 percent over the 12 months, pressured mainly by foreclosures.
