Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.24 percent, up 0.09 percentage point from the previous week and 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 6.44 percent.

The MBA's seasonally adjusted purchase index rose 1.0 percent to 280.4.

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

But with the tax credit set to expire in several months and distressed properties making up a high proportion of sales, the recent flurry of activity masks uncertainty about the long-term outlook.

"Right now the market has investors taking advantage of the great deals out there, mostly distressed properties in foreclosure or selling as short sales and first-time home buyers who are taking advantage of the first-time home buyers tax credit," Gillespie said.

"If that tax credit expires the end of November then the real estate market recovery will probably stall," he said.

Gillespie said what is truly needed is a $15,000 tax credit for all buyers of primary residences for a period of one year with no income caps so all levels of buyers have an incentive to get back into the market.

"A $15,000 tax credit will go a long way to helping us out of our economic situation today," he said.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 3.5 percent.