Brad Geisen, president and CEO of real estate website Foreclosure.com, said the level of interest rates on mortgages plays less of a role in home buying than it does in refinancing activity.

"Probably the biggest driving factor for home purchasing right now is price," he said. "During the housing boom, a lot of first-time home buyers were squeezed out of the market, but now property values have come down enough where they can afford it."

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

"People now realize they can buy the home of their dreams at an affordable price," he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.15 percent, down 0.23 percentage point from the previous week.

It was the lowest since the week ended July 10, but above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990.

Interest rates, however, were well below year-ago levels of 6.47 percent.

The MBA's seasonally adjusted purchase index rose 3.9 percent to 277.7.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, dipped 0.1 percent.

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.

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

Some analysts, however, say prices may fall again, with a wave of more foreclosures in the pipeline.