NEW YORK (Bloomberg) - US mortgage applications fell last week by the most since February, defying efforts by President Barack Obama's administration to revive the housing market.

The Mortgage Bankers Association's index of applications to purchase a home or refinance a loan dropped 19 percent to 444.8 in the week ended June 26 from 548.2 the prior week. The group's refinancing gauge declined 30 percent to the lowest in seven months, while the index of purchases fell 4.5 percent.

Unemployment, which touched a 26-year high in May, and rising borrowing costs discouraged homeowners from refinancing, while a growing number of foreclosures sidelined potential buyers waiting for house prices to stop tumbling. Pending home sales showing contracts signed in May rose 0.1 percent, compared with a gain of 6.7 percent in April, the National Realtors Association said yesterday.

"The run-up in mortgage rates is exacting a toll in terms of depressing mortgage applications," Brian Bethune, chief US financial economist at IHS Global Insight in Lexington, Massachusetts, said in an interview. "The economy is in a phase of attempting to find a bottom. Anything that comes in the way of that, like higher rates, is going to mean it takes longer."

Home loan rates climbed above five percent the week of May 29 for the first time in three months, according to mortgage bankers' data, and have remained elevated relative to 10-year Treasuries.

The percentage of people who said they plan to buy a home in the next six months fell to 2.7 percent in June from 2.8 percent in May, the Conference Board in New York said on Tuesday.

The mortgage bankers' refinancing gauge decreased to 1,482.2, the lowest reading since November, from 2,116.3 the previous week, today's report showed. The purchase index fell to 267.7 last week from a two-month high of 280.3.

The share of applicants seeking to refinance loans plunged to 46.4 percent of total applications last week from 54 percent.

The average rate on a 30-year fixed-rate loan fell to 5.34 percent from 5.44 percent the prior week. The rate reached 4.61 percent at the end of March, the lowest level since the group's records began in 1990.

At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be $558, or about $62 less than the same week a year earlier, when the rate was 6.33 percent.

The average rate on a 15-year fixed mortgage dropped to 4.81 percent from 4.93 percent the prior week. The rate on a one-year adjustable mortgage decreased to 6.52 percent last week from 6.54 percent, according to the mortgage bankers.

Home loan rates tracked by McLean, Virginia-based mortgage buyer Freddie Mac climbed along with Treasury yields through late May and early June on investor concern that a greater supply of government debt being sold to fund federal spending would fuel inflation.

This year the Federal Reserve purchases of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae brought down the yields on those securities, allowing lenders to reduce rates on new loans and still sell them at a profit.

Still, rising foreclosures that sell at discounted prices are flooding the market and depressing home values, according to Lawrence Yun, chief economist of the Chicago-based Realtors' group. This year the number of foreclosures may rise to 2.5 million, the highest on record, Mr. Yun said.

Existing US home sales in May rose 2.4 percent to an annual rate of 4.77 million, lower than forecast, and the median price was down 16.8 percent from the same month in 2008, according to the Realtors.

It would take about 9.6 months to sell the nation's 3.8 million unsold homes at the current sales pace, according to the Realtors.

"The worst is behind us but we're a long ways off from a recovery in housing," said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. "Inventories are still elevated. We're not expecting any strength in housing until the second half of 2010."