Demand for home purchases and refinancing rose despite mortgage rates rising to their highest level in four weeks. The rise in applications also came ahead of the Federal Reserve's rate decision on Wednesday.

Demand for refinancing and home purchase applications rose. This generally drove up the Market Composite Index, a measure of mortgage applications, the Mortgage Bankers Association (MBA) said Wednesday.

In the week ending 15 September, the market index rose 5.4% from a week earlier to 192.1. a year ago, it stood at 264.7.

Demand rose despite the 30-year rate rising to its highest level in four weeks.

Some homebuyers returned to the market. The Purchase Index, which measures mortgage applications for home purchases, rose 2.3 percent from last week.

On the other hand, some homeowners are seeing opportunities to refinance. The Refinance Index rose 13.2 per cent.

The average contract interest rate for 30-year home mortgages with a sale price of $726,200 or less was 7.31 percent for the week ending Sept. 15. That was up from 7.27 percent the week before, the MBA said.

The rate for jumbo loans, 30-year home mortgages with a sale price of more than $726,200, was 7.32 percent, up from 7.25 percent the previous week.

The average rate for 30-year mortgages backed by the Federal Housing Administration rose to 7.08 percent from 7.04 percent.

The average rate on 15-year mortgages fell to 6.62 per cent from 6.72 per cent the previous week.

Rates on adjustable-rate mortgages rose to 6.42 per cent from 6.59 per cent the previous week.

Overall Although overall demand for mortgages rose last week, the number of home purchase applications rose only slightly, indicating weak demand from homebuyers.

In addition to mortgage rates holding steady above 7%, high home prices due to a shortage of homes for sale are hurting homebuyers. With a limited supply of inventory, homebuyers are facing stiff competition.

The Federal Reserve meeting later today will provide some indication of whether mortgage rates will continue to hold the housing market hostage during this period or whether they will fall in the coming months. While most expect the Fed to keep policy rates steady during the meeting, the central bank will also provide its expectations for the future course of interest rates, the economy and the job market.

"Continued exposure to higher interest rates and limited for-sale inventory has made conditions for home purchases more challenging", Joel Kan, deputy chief economist and vice president of the MBA, said in a statement." Refinance applications also increased last week, but remain nearly 30 percent below a year ago."