A small measure of life returned to the mortgage market last week, with the Mortgage Bankers Association's Market Composite Index rising 7.1%, seasonally adjusted, from the week before. Fixed rates declined, with 30-year rates falling back to levels of last November and 15-year rates dropping to a new low. Unadjusted, the index rose 7%.

The Refinance Index increased 7.8% from the previous week. The seasonally adjusted Purchase Index increased 5.1%; unadjusted it was up 5.2% and was 5.9% higher than the same week a year earlier.

"Treasury rates plummeted more than 20 basis points last week as all eyes were focused on the debt ceiling negotiations in Washington, and economic data depicted much slower than anticipated economic growth," said Michael Fratantoni, MBA's vp of research and economics. "Mortgage rates fell, with the rate on 15-year mortgages reaching a new low in our survey. Refinance application volume increased, but even though 30-year mortgage rates are back below 4.5%, the refinance index is still almost 30% below last year's level. Factors such as negative equity and a weak job market continue to constrain borrowers. Purchase activity increased off of a low base, returning to levels of one month ago but remains weak by historical standards."

The four week moving average for the seasonally adjusted Market Index is up 2.8%, down 0.4% for the seasonally adjusted Purchase Index and up 4.2% for the Refinance Index.

The refinance share of mortgage activity increased to 70.1% from 69.6%. The adjustable-rate mortgage (ARM) share of activity increased to 6.6% from 6.1%.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.45% from 4.57%, with points decreasing to 0.78 from 1.14 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. That was the lowest rate for these loans since November 5, 2010.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.52% from 3.67%, with points decreasing to 1.02 from 1.08 (including the origination fee) for 80 percent LTV loans. That rate was the lowest since the survey began in 1990.