Mortgage applications rise as refinancing increases

"Mortgage rates dropped to their lowest level in the survey, going back to 1990, as incoming data continue to indicate that economic growth has slowed," he said.

Rates on 30-year fixed mortgages averaged 4.55 percent, down 0.05 percentage points from the previous week, the lowest level since the survey has been conducted weekly since 1990. 

Interest rates also were below their level at this time last year of 5.24 percent.

Low rates have sparked refinancing, which can put cash into consumers' hands to pay off debt or make other purchases needed to boost the economic recovery.

"With rates this low, many borrowers who refinanced in the past two years may well have an incentive to refinance again, and this is likely increasing refi application activity," Fratantoni said.

The housing market has lost steam since the April 30 expiration of homebuyer tax credits that provided up to $8,000. To take advantage of the tax credits, buyers had to sign contracts by April 30 and close by Sept. 30.

Existing home sales were down 27.2 percent in July, the slowest pace in 15 years, and new home sales dropped 12.4 percent last month, according to separate Commerce Department reports on Tuesday and today. 

The MBA's seasonally adjusted purchase index, a tentative early indicator of home sales, increased 0.6 percent.

The MBA said fixed 15-year mortgage rates averaged 3.91 percent, down from the previous week's 3.99 percent, a record low.