National mortgage rates moderated in the week ending July 31, spurring demand for new loans after a slump in the previous week, according to a weekly industry survey.

The Mortgage Bankers Association said average rates for a 30-year mortgage fell from 5.36% to 5.17% last week, their lowest level since the first week of July. The decline in rates helped refinance-related loans jump 7.2% in the week, leading the Market Composite Index ― which tracks the volume of mortgage applications ― to advance 4.4% in the week.

Refinance-related loans have now climbed 35% since a recent low at the end of June, while the 4-week average for the Market Composite Index has climbed just 1.2%.

According to Celia Chen, senior director at Moody's, low rates don’t necessarily mean it is easy to get a loan.

"Rates may be low, but I think lenders are still being very cautious," she said recently. "Lenders are just being careful about who they lend to."

Mortgage News Daily Editor Adam Quinones expands...

"Additional lender underwriting guideline overlays, the entire HVCC process, generally falling consumer FICO scores, and  risk based loan level price adjustments are just a few factors adding additional hurdles to the loan qualification process"

The Purchase Index edged up 0.9% in the week, though on a 4-week average purchases are 2.0% lower. 

Mortgage rates vary across the country but the state average is below 5.5% ― an historically low rate ― in all 50 states. According to a report from published yesterday, lenders in California and Colorado offer the lowest mortgage rates with an average of 5.22%, while rates in Illinois are currently the highest at 5.39%.

Many national housing indicators point to stabilization in the housing market, leading the majority of economists to believe a slow recovery is on the way. Most recently, the Pending Home Sales Index jumped 3.6% in June, marking the first time since 2003 that sales contracts have improved for five straight months.

"It appears home sales are on a sounder footing and inventory is gradually being absorbed," said Lawrence Yun from the National Association of Realtors after the index was posted yesterday.

"Historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who've been on the sidelines," he continued. "Activity has been consistently much stronger for lower priced homes."