Mortgage applications in the U.S. increased last week to the highest level since December as cheaper borrowing costs made refinancing more attractive.

The Mortgage Bankers Association’s index of loan applications rose 7.8 percent in the week ended May 13. The group’s refinancing measure advanced 13 percent, while the purchase gauge fell 3.2 percent.

Mortgage rates at the lowest levels in almost six months mean homeowners can refinance current loans to lower the cost of monthly payments. At the same time, declining property values indicate potential buyers may wait to see if home prices fall further before entering the market.

“The housing market is going to bounce around a little bit,” Paul Dales, senior U.S. economist at Capital Economics in Toronto, said before the report. “Both housing starts and home sales are going to remain at pretty weak levels by historical standards.”

The average rate on a 30-year fixed loan decreased last week to 4.60 percent, the lowest since the end of November, from 4.67 percent, the mortgage bankers group said. Borrowing costs reached 4.21 percent in October, a record-low dating back to when the group’s records began in 1990.

The average rate on a 15-year fixed mortgage dropped to 3.75 percent from 3.81 percent, the report showed.

More Refinancing

The share of applicants seeking to refinance a loan rose to 66.7 percent last week from 63.1 percent the prior week.

Other reports indicate housing has not yet joined areas of the economy that are recovering. Work began on 523,000 houses at an annual pace in April, down 11 percent from the prior month and less than the median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed yesterday. Building permits, a proxy for future construction, fell 4 percent to a 551,000 pace.

Confidence among homebuilders was little changed in May, restrained by a drop in the sales outlook, a report from the National Association of Home Builders/Wells Fargo showed this week. The group’s sentiment index held at 16 for a second month. Figures less than 50 mean more respondents view conditions as poor.

Toll Brothers Inc. Chief Executive Officer Douglas Yearley Jr. last week said the April through June home selling season, typically the busiest of the year, has been “disappointing” and that “people are still scared.”