According to the Mortgage Bankers Association (MBA), its seasonally adjusted index of mortgage applications - which includes both purchase and refinance loans - rose 5.6% to a reading of 527.0 for the week ended August 14. The increase was due to a drop in loan rates -- the rate on 30-year fixed-rate mortgages, excluding fees, dropped 0.23% from the previous week to an average of 5.15%.

This is the lowest since the week ended July 10, but is well above the all-time low rate of 4.61% in the last week of March this year. Analysts say that the interest rates on mortgages play less of a role in home buying than they do in refinancing activity. "Probably the biggest driving factor for home purchasing right now is price," said Brad Geisen, president and CEO of real estate website Foreclosure.com. "During the housing boom, a lot of first-time home buyers were squeezed out of the market, but now property values have come down enough where they can afford it." The MBA's seasonally adjusted purchase index rose 3.9% to 277.7.