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WASHINGTON (

TheStreet

) -- Mortgage applications spiked 15.5% last week as

mortgage rates

remained below 5% and the labor market continued to show improvement.

The volume of mortgage loan applications rose 15.5% on a seasonally adjusted basis in the week ending March 4, the Mortgage Bankers Association said Wednesday.

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Refinancing application volume increased 17.2% from the previous week to the highest rate observed since Jan. 14. Home-purchase loan applications increased 12.5% week-over-week to its highest level so far in 2011. On an unadjusted basis, the MBA's purchase index was 14.3% lower than in the year-earlier week.

"Taking into account typical seasonal patterns, purchase applications rose to their highest level of the year last week. On an unadjusted basis, purchase application activity is the highest since last May," said Michael Fratantoni, MBA's Vice President of Research and Economics.

"An improving job market is beginning to pave the way for an improving housing market," he added. "Additionally, mortgage interest rates remained below 5% for a second week, maintaining affordability for buyers and leading to an increase in refinance applications."

A total of 65.5% of all loan applications last week were for refinancing existing mortgages, up from a 64.9% share in the prior week.

The average rate on a 30-year fixed mortgage edged higher to 4.93%, from 4.84% in the prior week, remaining below the psychological benchmark of 5%.

While the housing market remains sluggish there are some signs of future recovery.

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Still, the homebuilder sector remains well off its late-spring peak last year when

buyers were rushing to take advantage of federal tax credits for homebuyers, and is only slightly higher than at the beginning of 2010. Whereas other sectors have begun a rebound in earnest, the housing sector continues to lag.

The

SPDR S&P Homebuilders

(XHB)

, an exchange-traded fund that tracks the homebuilder sector, remains around 60% off its peak of $46.08 in early 2006. The

iShares Dow Jones U.S. Home Construction

(ITB)

ETF remains more than 70% off its peak of $50.10 in the spring of 2006.

-- Written by Miriam Marcus Reimer in New York.

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