NEW YORK (Reuters) - U.S. mortgage applications dipped last week, reflecting lower demand for home loan refinancing as interest rates surged to their highest since October, an industry group said on Wednesday.

A "for sale" sign advertises a reduced price for a home for sale in Portland, Oregon December 26, 2007. U.S. mortgage applications dipped last week, reflecting lower demand for home loan refinancing as interest rates surged to their highest since October, an industry group said on Wednesday. REUTERS/Richard Clement

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended March 7 fell 1.9 percent to 671.7.

The U.S. housing market is suffering one of the worst downturns in history. Last week’s drop in demand may indicate what is in store for the hard-hit sector this spring, which is the peak home-buying season.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.37 percent, up 0.39 percentage point from the previous week, the highest since the week ended October 12, 2007 when it hit 6.40 percent.

Fixed 15-year mortgage rates averaged 5.72 percent, up from 5.26 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 6.72 percent from 5.83 percent.

Overall mortgage applications last week were 2.7 percent below their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 12.1 percent to 711.1.

The MBA’s seasonally adjusted purchase index rose 1.6 percent to 368.8. The index came in below its year-earlier level of 414.3, a drop of 11.0 percent.

The group’s seasonally adjusted index of refinancing applications decreased 4.7 percent to 2,448.2. The index was up 5.9 percent from its year-ago level of 2,312.2.

Consumers seeking to refinance their existing home loans tend to be highly sensitive to shifts in interest rates.

The refinance share of applications decreased to 50.6 percent from 52.4 percent the previous week. The ARM share of activity decreased to 15.5 percent, down from 17.3 percent the previous week.