July 28 (Reuters) - The number of applications for U.S. home mortgages increased last week, driven by an uptick in refinancing activity and a decline in purchase activity as mortgage rates fell. The Mortgage Bankers Association (MBA) said on Wednesday its seasonally adjusted market index rose 5.7% in the week ended July 23 from a week earlier. That reflected a 9.3% increase in applications to refinance existing loans, while purchase applications declined 1.6%. The average contract interest rate for traditional 30-year mortgages decreased to 3.01% from 3.11% the prior week, its lowest level since February. "The purchase index decreased for the second week in a row to its lowest level since May 2020, and has now declined on an annual basis for the past three months," Joel Kan, MBA"s associate vice president of economic and industry forecasting, said in a statement. "Potential buyers continue to be put off by extremely high home prices and increased competition."