The recent spike in market interest rates put the brakes on mortgage applications, according to an industry trade group.

The Mortgage Bankers Association Wednesday said its index covering mortgage purchases and refinancing fell 22.1% from a week ago. Refinancing activity sank 30.7% while applications for purchase-oriented mortgages fell 9.5%. The share of all mortgage applications for refinancing decreased to 50.4% from 57.1% a week ago.

Most mortgage rates are determined by the yield -- or interest rate -- of the Treasury's 10-year note, which has surged in the past weeks on signs of a strong economy. The yield touched the 4.4% level Wednesday, having been as low as 3.65% in mid-March. A dip in March triggered a brief surge in mortgage activity, especially in the area of refinancing as homeowners sought to lower already historically low borrowing costs on existing mortgages.

The average interest rate on 30-year fixed-rate mortgages increased to 5.77% from 5.75%, while the average rate for 15-year fixed-rate mortgages increased to 5.08% from 5.03%.

In a separate report Wednesday, the mortgage banking group released its outlook for the economy and housing market.

It forecast GDP growth will average 4.6% in 2004 and then slow to just under 4% in both 2005 and 2006.

The yield on the 10-year Treasury will rise to an average of 4.3% by the fourth quarter of this year, hit 5% during the fourth quarter of 2005 and then average 5.4% in 2006. Mortgage rates, the association said, will follow a similar pattern, with activity down sharply from its record rate of 2003.

Existing-home sales will fall 1.7% from 2003's record levels, but new-home sales will continue to rise in 2004, before falling sharply in 2005. The surge in home prices is expected to moderate this year with existing-home prices increasing 4.5% and new-home prices increasing 5.5%.

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