A gauge of US mortgage applications for home purchases rose to an almost six-month high as lower borrowing costs prompted more buyers to step off the sidelines.

The index of mortgage applications to buy a home increased 9.2 per cent in the week ended Jan 12 to 162.2, the highest since July 14, according to the Mortgage Bankers Association (MBA). The measure of overall applications, which also includes refinancing, jumped 10.4 per cent.

The contract rate on a 30-year fixed mortgage decreased 6 basis points to a three-week low of 6.75 per cent.

The housing market has rebounded from its lows in October, when 30-year rates approaching 8 per cent sent home-purchase applications reeling to the lowest level since 1995.

While the weekly increase was the largest in a year, the figures are prone to large swings in weeks near holidays.

The figures suggest the housing market is gradually finding some footing as borrowing costs settle back. Existing-home sales have stabilised, though a lack of inventory in the resale market is steering more buyers toward new houses. A further drop in mortgage rates could allow more homeowners, who have locked in at much lower levels, to list their properties.

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The MBA’s index of applications to refinance increased 10.8 per cent last week to the highest level since early May. 

The MBA survey uses responses from mortgage bankers, commercial banks and thrifts and has been conducted weekly since 1990. The data cover more than 75 per cent of all retail residential mortgage applications in the US. BLOOMBERG