The number of mortgage applications dropped this week, but does that foretell a continuing troubled housing market? Other indicators are more positive.

According to the Mortgage Bankers Association, the number of applications filed for mortgage loans at major U.S. banks fell by 0.6 percent last week compared to the previous week, concurrent with an uptick in mortgage interest rates.

The average rate for the benchmark 30-year fixed-rate loan rose to 6.19 percent from 6.13 percent the previous week.

The MBA also said that the rate for a 30-year fixed-rate mortgage would rise to 6.5 percent by the end of 2007 and that sales of both existing and new homes would decline this year.

While home sales and prices have declined in 2006, there's plenty of reason to be optimistic that the ones dropping out of homebuying are the speculators and that buyers who want to live in their own homes are still plentiful.

One reason is that loan applications are up overall, because refinancings are pushing upward. Applications to refinance existing loans increased 6.3 percent last week, up about 24 percent compared with the same week a year earlier.

This suggests that people who are in their homes are hunkering down for the duration of several years. Because of transaction costs, most refinancers will plan to be in their homes at least two to five more years.

The National Association of Realtors ' eonomists expect existing-home sales for 2006 to come in at 6.50 million, making the year the third highest on record. For 2007, the trade organization predicts a total of 6.42 million homes sold for 2007.

Also optimistic is the National Association of Home Builders . The NAHB reports that while housing starts (houses beginning construction) were down 25.5 percent when compared with a year earlier and permits to build were down 10 months in a row (31.3 percent,) that decreased inventory and lower prices is reigniting buyer interest.

"Builders are starting to see that the worst is behind them and that buying conditions have improved to the point that greater optimism is warranted," said David Seiders, chief economist for the NAHB. The mood, he says, reflects lower mortgage rates since mid-year, lower energy prices, and solid growth in jobs and incomes.

Energy prices may be the wild card. While mortgage interest rates are rising gradually, but slowly, other economic news such as high gas prices aren't exaserbating consumers' worries. Last summer when interest rates hovered near 7 percent, housing sales stalled, but consumers were unnerved by the parallel of record high gas prices. With the immediate worry of how to keep their SUV's filled with gas, home shopping seemed to be less of a priority. Since then, gas prices have leveled off to the lowest prices in 20 months, according to the Fuel Gauge Report .

Pump prices are back down to about $2 (regular unleaded) a gallon, while last summer the prices reached nearly $3 a gallon.