The apparent demand for new and refinanced mortgages is growing as bargain hunters start buying and the mood of homeowners looking to refinance appears to be thawing.

Based on loans equal to 80 percent of a home’s value, both 30-year and 15-year fixed-rate mortgages showed major rate drops, as well as an activity spike, for the week ended Feb 13.

"Value is the only thing that neutralizes the low level of confidence that prevails," said real estate analyst Lewis Goodkin, founder of Miami-based Goodkin Consulting. "Declining rates translate to greater affordability and enhance both intent and action."

The average contract rate for the 30-year, fixed-rate mortgage fell to 4.99 percent, according to weekly survey data from the Washington, D.C.-based Mortgage Bankers Association. That was down from an average of 5.19 percent in the previous week. The associated cost of points, including the origination fee, was 1.37, up from 1.2 in the previous week. One point equals one percent of the loan amount.

There was an even bigger drop for the 15-year fixed-rate mortgage average. It fell to a 4.66 percent average rate from 5 percent in the previous week. Points were marginally higher, at 1.22 from 1.21 in the previous week.

Real estate analyst Jack McCabe, CEO of Deerfield Beach-based McCabe Research & Consulting, said the rates are attractive, but questioned how many of the applications would actually result in a mortgage.

"Anecdotally, we know that buyers are still being stymied in getting mortgage loans as credit standards have been tightened," he said.

The Mortgage Bankers Association's Market Composite Index, a measure of mortgage loan application volume overall, increased 47.5 percent, on an unadjusted basis, compared to the previous week, and was up 5.2 percent compared to the same week the previous year.

The refinance index increased 64.3 percent, while the seasonally adjusted Purchase Index was up 9.1 percent.

Breaking it down even finer, the association’s Conventional Purchase Index increased 10.9 percent from the preceding week, while its Government Purchase Index, largely made up of FHA applications, increased 5.5 percent.

The spurt of weekly activity may take on even greater significance – and could signal a turnaround point if the trend continues - because the four-week moving averages of all the indexes are still down 4.2 percent to 12.2 percent.

Goodkin doesn’t see a housing recovery as long as the weak economy and poor market psychology lasts. He points to foreclosure sales and declining prices as market drags.

In terms of overall mortgage applications, refinancing accounts for 74.2 percent of the total loans applied for, up from 66.7 percent the previous week.

"Nearly three-quarters of all applications are still for refinancing," McCabe said. "That ties in with our field research and broker feedback that homeowners stuck in adjustable rate mortgages are trying to bail into low-rate fixed mortgages."

The appetite for adjustable-rate mortgages (ARMs), blamed for much of the turmoil in the current marketplace, continues to wither, according to association data, as ARM applications declined to 1.7 percent of the total mix from 2.5 percent the previous week.