(Mortgage activity report updated with analyst commentary.)

WASHINGTON (

TheStreet

) -- Mortgage applications edged lower last week as

mortgage rates

edged higher.

The volume of mortgage loan applications decreased 0.9% on a seasonally adjusted basis in the week ending Dec. 3, the Mortgage Bankers Association said early Wednesday.

Mortgage activity fell 16.5% in the prior week.

>>Homebuilder Stocks: Behind the Numbers

Refinancing applications decreased 1.4% from the previous week to the lowest level observed since June. It was the fourth consecutive weekly drop in refinancing activity. Refi activity tumbled 21.6% in the previous week. New-home purchase loan applications pushed 1.8% higher from the prior week -- the third weekly increase -- to its highest level since early May.

"The housing market continues to bounce along this fragile bottom," Neil Dutta, an economist at Bank of America Merrill Lynch Global Research, told

Bloomberg

ahead of the report.

A total of 75.2% of all loan applications last week were for refinancing existing mortgages, up slightly from a 74.9% share in the prior week.

The average rate on a 30-year fixed mortgage increased to 4.66%, from 4.56% in the prior week. It was the highest rate observed since July and was the fourth consecutive weekly increase. Still, mortgage rates remain near all-time lows.

Some potential homebuyers have decided to go ahead and sign contracts, hoping to lock in still-low rates. Homebuilder

Toll Brothers

(TOL) - Get Report

, which surprised investors with a return to year-over-year profitability in its fiscal fourth quarter, said deposits jumped 10% in the second half of November compared with year-earlier results.

"In the last two weeks, interest rates have been going up," said Toll Brothers chairman Chairman Robert Toll on a Dec. 2 earnings call with investors and analysts following the release of its quarterly report. "So finally there is no longer a reason to sit and wait."

>>Toll Brothers Beats, Returns to Profitability

Near-record-low mortgage rates failed to spark robust demand for housing in recent months, but continue to have an effect on homeowners looking to lower their monthly payments through refinancing, though even refi activity has been waning as mortgage rates bounce off lows observed earlier this year.

While any mortgage demand can be viewed in a positive light, the still-struggling housing market continues to be plagued by sluggish demand, in part because of the tight credit market and inability of many potential buyers to access the credit they need to finance a mortgage.

Many Americans suffer from negative equity, where the amount they owe on their home is higher than the value of it, making them unqualified for refinancing.

Still-depressed home prices do not seem to make it any easier. The S&P/Case-Shiller 20-city index of national home prices rose slightly in September but home prices across the U.S. fell 2% in the third quarter after rising 4.7% in the second quarter.

September's 0.6% uptick disappointed market watchers who expected the index to rise 1% in the month.

>>Home Prices Continue to Cool

Several market watchers consider weakening home prices an ominous sign for the overall housing market.

"Another weak report, weaker than last month," said David M. Blitzer, chairman of the index committee at Standard & Poor's, commenting last week on the disappointing Case-Shiller data. "The national economy is certainly the number one issue for housing. Additionally, there is a large supply of houses on the market and further, hidden, supply due to delinquent mortgages, pending foreclosures or vacant homes. New construction is running at less than half the pace needed to meet normal demand, so a sustained recovery could be a ways off," Blitzer continued.

Sales of newly built homes unexpectedly fell 8.1% in October to a weaker-than-expected annual rate of 283,000, according to a recently released report by the Commerce Department.

>>New-Home Sales Fall 8.1% in October

The government data followed a report from the National Association of Realtors which showed that

sales of previously occupied homes fell 2.2% in October to a slightly better-than-expected seasonally adjusted annual rate of 4.43 million units.

>>Existing-Home Sales Fall 2.2% in October

Homebuilders began construction on 11.7% fewer homes in October to an annualized rate of 519,000, far worse than the expected contraction rate. Applications for building permits, meanwhile, inched 0.5% higher to 550,000, from 547,000. Data for November's housing starts and building permits is due out next week, on Dec. 16. Economists' consensus call is for housing starts to increase to an annualized rate of 545,000, while building permits, a measure of future building activity, is expected to increase to a rate of 570,000.

>>Housing Starts Fall 11.7% in October

Pending home sales rebounded 10.4% in October, better than expected though 20.5% lower than in the year-earlier month.

>>Pending Home Sales Rebound 10.4% in October

Stocks in the homebuilder sector were mixed but mostly lower Wednesday afternoon.

The

SPDR S&P Homebuilders

(XHB) - Get Report

, an exchange-traded fund that tracks the homebuilder sector, fell 0.4% while the

iShares Dow Jones US Home Construction

(ITB) - Get Report

ETF lost 0.6%.

Among individual builders, Toll Brothers lost 1.6%,

D.R. Horton

(DHI) - Get Report

2.3% and

Lennar

(LEN) - Get Report

0.3%.

PulteGroup

(PHM) - Get Report

bucked the trend, gaining 1.1%.

The

SPDR S&P 500

(SPY) - Get Report

ETF was just above the unchanged mark, gaining 0.1%. The

PowerShares QQQ Trust

(QQQQ)

gained 0.2%.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here:

Miriam Reimer

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.

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