updated 6/23/2010 2:29:03 PM ET 2010-06-23T18:29:03

Mortgage applications volume dropped off by 5.9 percent last week even as mortgage rates decreased, a sign the housing market is struggling with government incentives, according to a report Wednesday from the Mortgage Bankers Association.

Refinancing activity fell 7.3 percent on an adjusted basis during the week ending June 18, compared with the previous week. Purchase volume slipped 1.2 percent.

Customers looking to refinance existing mortgages accounted for 73.8 percent of total applications, down from 74.8 percent the previous week.

Mortgage rates have hovered near historic lows recently. A Federal Reserve campaign to keep rates low ended this spring and rates were expected to rise. But they have declined instead in the past two months as investors pour money into the safety of U.S. Treasury bonds on concerns over the European debt crisis. Mortgage rates tend to follow the yield on U.S. Treasury debt.

Low mortgage rates are key to keeping the housing market afloat after federal tax credits expired at the end of April. But home sales have dropped off since and rates may not be enough to bolster demand.

The average rate for a traditional, 30-year fixed-rate mortgage decreased to 4.75 percent last week from 4.82 percent the previous week.

The average interest rate on a 15-year fixed-rate mortgage, which is often more popular with refinance customers, fell to 4.19 percent from 4.23 percent.

The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers more than 50 percent of all residential retail mortgage originations each week.

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Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.32%
$30K home equity loan FICO 5.05%
$75K home equity loan FICO 4.50%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 10.98%
10.96%
Cash Back Cards 16.43%
16.43%
Rewards Cards 16.00%
15.99%
Source: Bankrate.com