U.S. mortgage applications for home purchasing and refinancing rose last week as consumers sought to take advantage of near-record low interest rates, data from an industry group showed on Wednesday.

While the uptick bodes well for the housing market, which has been showing signs of improvement, demand has been tepid, reflecting the inability of many consumers to take advantage of rock-bottom rates.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes purchase and refinance loans, increased 3.2 percent for the week ended Oct. 22. The four-week moving average, which smooths the volatile weekly figures, was up 1.4 percent.

It was only the second time in eight weeks activity rose.

Michelle Meyer, senior U.S. economist at BofA Merrill Lynch in New York, said demand remains sluggish despite the rise.

"This implies that the soft trend in home sales should persist amid high unemployment, tight credit and depressed consumer confidence," she said.

Meyer said "underwater" mortgages — where the amount owed on the mortgage exceeds the value of the home — are one of the biggest banes of the homeowners.

This negative equity makes many of them unqualified for home loan refinancing and prevents some from selling.

"The refinancing index has increased notably, but still less than to be expected given incredibly low mortgage rates," she said.

The MBA's seasonally adjusted index of refinancing applications increased 3.0 percent.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.25 percent, down 0.09 percentage point from the previous week. Interest rates were also below their year-ago level of 5.04 percent.

Last week's rate matched that of the week ended Oct. 1, which was the second lowest level in the survey, which has been conducted weekly since 1990. A record low of 4.21 percent was reached in the week ended Oct. 8.

If home loan refinancing continues to climb it will bode well for the flailing U.S. economy as this activity typically encourages an increase in consumer spending.

By lowering monthly mortgage payments, lower rates may also help some homeowners avoid default and foreclosure if their credit is good enough.

The MBA's seasonally adjusted purchase index, a tentative early indicator of home sales, rose 3.9 percent.

The housing market has been struggling since the expiry of popular home buyer tax credits earlier this year. To take advantage of the tax credits, buyers had to sign purchase contracts by April 30. Contracts originally had to close by June 30, but that was extended by three months.

The tax credits pulled sales forward and activity dropped after the expiry.

Encouraging news this week indicate this payback may be easing. The National Association of Realtors on Monday said sales of previously owned U.S. homes in

September increased 10 percent from August.

More insight into the state of the housing market will emerge on Wednesday when the Commerce Department releases September new home sales data.

The MBA said fixed 15-year mortgage rates averaged 3.67 percent, down from 3.74 percent the previous week and the second lowest on record, with the lowest being 3.62 percent two weeks prior. Rates on one-year adjustable-rate mortgage, or ARMs, decreased to 7.07 percent from 7.17 percent.