NEW YORK - U.S. mortgage applications dipped last week as interest rates on 30-year loans rose above 5 percent, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said rates on 30-year fixed-rate mortgages, the most widely used loan, rose above 5 percent for the first time in four weeks after falling to a four-month low.

The 5 percent level is seen as a psychological tipping point, and has recently sparked a boom in refinancings.

Tom Marano, chief executive of mortgage operations at GMAC, said interest rates below 5 percent made a significant impact on home loan volume at GMAC, especially for refinancing.

Overall rate-lock volume was up between 30 and 35 percent during the time when rates were below the 5 percent threshold and an estimated over 90 percent of this increase was coming from refinance activity, he said.

We began adding resources to our lending staff late in 2008, and that group has probably grown by 30 percent, Marano added.

The MBA said its seasonally adjusted index of mortgage applications USMGM=ECI, which includes both purchase and refinance loans, for the week to Oct. 9 decreased 1.8 percent to 742.9 after touching its highest since the week ended May 22 in the previous week.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.02 percent, up 0.13 percentage point from the previous week when it hit its lowest since the week to May 22.

The rate remained above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990. Nevertheless, interest rates were well below the year-ago level of 6.47 percent.

Low mortgage rates, high affordability and the federal government's $8,000 tax credit for first-time home buyers -- part of the stimulus bill -- have helped pave the way for stabilization.

But with the tax credit set to expire on Nov. 30 and distressed properties making up a high proportion of sales, the recent uptick in activity may mask uncertainty about the long-term outlook.

Thomas Lawler, housing economist and founder of Lawler Economic & Housing Consulting in Leesburg, Virginia, said he does not recommend an extension of the tax credit's expiration.

It is extremely expensive and the program does not directly impact the core issues facing the housing market, namely a weak jobs market and slow growth in household formation, he said.

The U.S. Labor Department said the jobless rate in September hit a 26-year high at 9.8 percent.

Applications to buy a home, seen as a tentative early indicator of sales, dropped. The MBA's seasonally adjusted purchase index USMGPI=ECI fell 5.0 percent to 290.9.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 5.6 percent.

REFINANCING DIPS

The Mortgage Bankers seasonally adjusted index of refinancing applications USMGR=ECI decreased 0.1 percent to 3,374.6.

The refinance share of applications increased to 67.4 percent from 66.3 percent the previous week, but remained significantly lower than the peak of 85.3 percent in the week to Jan. 9. The adjustable-rate mortgage share of activity edged up to 6.2 percent from 6.1 percent the prior week.

The U.S. housing market has suffered the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world.

The housing market, however, has been showing signs of stabilization, with sales rising and price declines moderating in many regions of the country. In fact, home prices in some areas have risen.

But some analysts say prices may fall again, with a new wave of foreclosures in the pipeline. This shadow inventory is viewed as one of the largest obstacles to a recovery.

The biggest cloud over the housing market right now is by far foreclosures and if it were not for that issue people should be feeling pretty good, Lawler said. People cannot look at the number of loans that are delinquent and not be worried.

Fixed 15-year mortgage rates averaged 4.44 percent, up from 4.32 percent the previous week. Rates on one-year ARMs increased to 6.71 percent from 6.56 percent.

Mortgage