More people are applying for mortgage loans to either purchase a home or to refinance their existing mortgage loan according to a survey of mortgage lenders released this morning.

A weekly survey conducted by the Mortgage Bankers Association reported that in the week ending October 2, mortgage applications to refinance rose 18.2 percent from a week ago, while mortgage applications to purchase homes rose 13.2 percent from the prior week.

The weekly survey suggests that households are responding to falling mortgage rates and are applying for more mortgage loans due to lower rates. The survey reported that 30-year mortgage rates finished the week at 4.89 percent compared to a 4.94 percent rate a week earlier. The one-year adjustable rate mortgage rose and finished the week at 6.56 percent compared to a 6.40 percent rate a week ago. However, ARM application accounted for only 6.1 percent of total applications.

The survey also reported that refinance applications comprised 66.3 percent of all mortgage applications, while purchase applications accounted for 33.7 percent. –

The rise in mortgage applications in the latest week was cheered this morning by the housing markets. The 13.2 percent rise in purchase applications for the week portends favorably for future home sales. Historically, mortgage applications have been a reliable indicator of future home sales activity. Purchase application volume has been trending upward since the beginning of the year. Today’s housing news is one more piece of evidence that the nation’s housing sector is stabilizing and on the road to recovery. However, optimism is somewhat tempered because many housing analysts believe that a percentage of purchase applications may have been pushed forward by households anticipating the November 30 expiration date of the homebuyer tax credit.

The surge in refinancing applications reflects homeowners’ attempts to lower monthly mortgage payments by refinancing into lower rate mortgage loans. The increased volume was welcomed news for mortgage lenders.

Looking forward the housing market continues to face serious obstacles. Future home sales could slow if the federal homebuyer tax credit is permitted to expire in November. During the past six months, the $8,000 tax credit provided a meaningful financial incentive for first-time buyers to purchase homes. Most industry observers are worried that if the credit is lifted, first-time home buying activity will slow.

Home buying could also slow because of an expected rise in foreclosure filings. Economists and industry analysts are projecting a significant increase in foreclosures due to planned rate resets on option ARM and interest only mortgage loans over the next several years. More foreclosures would add to an already excess supply of existing homes, exerting downward pressure on home values. Falling home prices could encourage households to postpone home purchases. No one wants to purchase a home, only to see its price drop further after the closing.

Continued job losses remain a serious threat to home sales. Although the labor market has recently shown signs of rebounding, the economy continues to shed jobs every month, discouraging households for purchasing homes. It is not surprising that families that are worried about their job situation are not willing to commit to a large financial purchase.