WASHINGTON (Bloomberg) — Mortgage rates for 30-year fixed US home loans fell for the second consecutive week, pushing borrowing costs to near record lows.

The average US 30-year rate dropped to 4.87 percent from 4.94 percent last week. The 15-year rate was 4.33 percent, mortgage buyer Freddie Mac of McLean, Virginia, said yesterday in a statement.

Falling rates helped boost home-loan applications last week to the highest level since May. The Mortgage Bankers Association's index of applications to purchase a home or refinance rose 16 percent. Rates around five percent, slumping home prices and a government tax credit for first-time homebuyers are bolstering demand for housing.

"We're not expecting the housing market to come roaring back to anything close to what it was during the boom," said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. "It's going to be a long, gradual recovery."

The Federal Reserve set out last year to encourage lower mortgage rates by pledging to buy bonds backed by home loans. It increased the size of the programme to $1.25 trillion in March.

The purchases from Fannie Mae, Freddie Mac and Ginnie Mae brought down yields on mortgage-backed securities and allowed lenders to reduce rates on new loans while still selling the securities backed by them at a profit. Mortgage applications to buy a home climbed 13 percent in the week ended October 2 and the refinancing gauge surged 18 percent.