Mortgage demand drops

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.86%, up 0.13 percentage point, its highest level since April 12, 2002, when it reached 6.92%.

The purchase index, which is considered a timely gauge of U.S. home sales, was substantially below its year-ago level of 477.4.

The group's seasonally adjusted index of refinancing applications decreased 7.5% to 1,356.0. A year earlier the index stood at 2,529.2.

Historically low mortgage rates have fueled a five-year housing boom, helping support the U.S. economy's recovery from recession despite uncertain business investment.

While analysts differ on the existence of a housing bubble, most agree that the market is cooling off from its record run.

The Commerce Department on Monday said sales of new single-family U.S. homes again defied predictions of a slowdown in May and rose 4.6%.