An increase in home purchases helped mortgage applications rise last week from their lowest level in more than seven years.

The Mortgage Bankers Association said in a report issued Wednesday that its index of applications to buy a home or refinance a loan gained 0.5% from the previous week, to 421.6. The purchase index rose 0.6%, to 315.9, and the refinancing gauge rose 0.3%, to 1,038.

Prospective buyers may be lured by the continuing price decline. Even so, higher mortgage rates and tougher lending rules are expected to offset some of the benefit — an indication that housing will be slow to recover.

"The recent backup in mortgage rates … presents clear downside risks to the recent stabilizing trend in home sales," Ted Wieseman, an economist at Morgan Stanley in New York, said before the report was issued. A drop in borrowing costs is "needed to prevent a renewed down leg in sales."

The average rate on a 30-year fixed loan dropped 3 basis points, to 6.44%. Last month it reached a one-year high of 6.58%.

For 15-year fixed mortgages, the average rate decreased 5 basis points, to 5.94%. For one-year adjustable loans, the rate rose 8 basis points, to 7.15%. Last month it had reached a seven-year high of 7.25%.

Reports this week have suggested the housing slump may be stabilizing. The Commerce Department said sales of new homes rose last month from a 17-year low, and the National Association of Realtors reported an increase in home resales.

Delinquencies on mortgages are rising. Freddie Mac reported Tuesday that the percentage of single-family home loans were more than 90 days past due last month rose 8 basis points from June, to 1.01%.

The Federal Open Market Committee said this month that continued weakness in housing is one of the factors that are "likely to weigh on economic growth over the next few quarters," according to the minutes released Tuesday. Policymakers also said that "tight conditions in the mortgage credit markets" were limiting demand.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.