updated 4/1/2009 11:20:14 AM ET 2009-04-01T15:20:14

An index that tracks signed contracts to purchase previously occupied homes rose in February from a record low a month earlier as U.S. buyers took advantage of deeply discounted prices and low interest rates.

Meanwhile, mortgage applications continued to rise last week, as low interest rates encouraged borrowers to refinance their home loans.

The National Association of Realtors said Wednesday said its seasonally adjusted index of pending sales for previously occupied homes rose 2.1 percent — in line with expectations — to 82.1 in February from January's record low of 80.4.

Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future home sales.

Because of falling home prices and mortgage rates, homeownership is more affordable than it's been since at least 1970, the trade group said.

Hopes have been growing that home sales, while still severely depressed, may be finally showing signs of life. Sales of existing home sales rose 5.1 percent in February, the largest increase in nearly six years.

Prices, however, are expected to keep falling for at least another year. Tens of thousands of homes are tied up in the foreclosure process and not yet for sale. Plus, as the recession deepens and job losses mount, many buyers are likely to stay on the sidelines.

The Realtors estimate that 45 percent of existing home sales are now foreclosures and other distressed properties.

Many in the real estate industry are counting on an $8,000 tax credit for first-time homebuyers as their best hope for boosting flagging sales. That incentive was included in the economic stimulus package signed by President Barack Obama earlier this year.

"We expect home sales to gain momentum in the second half of the year with first-time buyers absorbing a lot of the excess inventory," Lawrence Yun, the trade group's chief economist, said in a statement. "Under these conditions, we should see price stabilization in most markets by the end of the year."

For now, however, refinancings rather than first-time buyers still dominate.

The Mortgage Bankers Association said Wednesday its weekly application index climbed 3 percent for the week ended March 27. The index came in at 1,194.4, up from 1,159.4 a week earlier.

On an unadjusted basis, the index rose 2.9 percent compared with the previous week, the trade group said.

Nearly 80 percent of applications came from borrowers seeking to refinance home loans at lower rates, rather than purchase homes.

The trade group's application index remains below its peak of 1,856.7, reached in May 2003 at the height of the housing boom.

The survey provides a snapshot of mortgage lending activity involving mortgage bankers, commercial banks and thrifts. It covers about half of all new residential mortgage loans made each week.

An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume.

Seeking to prop up the ailing U.S. housing market, the Federal Reserve has committed to buy up to $1.2 trillion in mortgage-backed securities and $300 billion in long-term government debt. That has pushed down mortgage rates.

The average rate for traditional, 30-year fixed-rate mortgages dipped to 4.61 percent from 4.63 percent a week earlier, according to the MBA report.

The average rate for 15-year fixed-rate mortgages slipped to 4.45 percent from 4.48 percent a week earlier, while the average rate for one-year adjustable-rate mortgages was fell to 6.20 percent from 6.22 percent.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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