Average interest rates on mortgage loans around the country decreased in the latest week, bearing good news for eager borrowers but reflective of a slower economy in general.

“Interest rates for fixed-rate mortgages continue to drift down as reports of economic weakness persist,” said Frank Nothaft Thursday, vice president and chief economist for mortgage giant Freddie Mac. “…However, the housing front is providing some encouraging signs. The pace of home price declines slowed down for the fourth straight month in June and the number of metro areas exhibiting monthly gains rose from seven to nine… There are also signs more buyers may be getting ready to return to the market.”

The average rate on a 30 -year fixed rate mortgage fell to 6.40 percent, excluding points, during the week ended August 21, 2008, down from 6.47 percent the previous week. The current rate is also down significantly from one year ago when it stood at 6.67 percent.

Fifteen-year fixed rate home loans carried an average interest rate of 5.93 percent, down from 6.00 percent the week before and from 6.12 percent during the same week of 2007.

Rates on one-year adjustable rate mortgages (ARMs), however, rose to 5.33 percent from 5.29 percent one week earlier, but were much lower than the 5.84 percent rate of a year ago.

Mortgage interest rates generally follow market opinions about overall economic health. When the economy is perceived to be flourishing, interest rates tend to increase. Yet if analysts on Wall Street predict financial doom and gloom, rates tend to fall.

While mortgage rates did fall in the past week, there are some new rays of light for the home loan industry. During the same time, applications for mortgage loans increased slightly for the first time in the three weeks, according to the Mortgage Bankers Association, indicating a small jump in home buying activity. Additionally, the MBA’s figures signal an incremental rise in the number of homeowners taking advantage of refinancing options.

And while no one expects a dramatic comeback of the housing market, recent interest rate and application data as well as other indicators are giving economists hope that the “bottom” is here or at least very near.  An index of national house prices for the second quarter, released Tuesday and known as the Standard & Poor’s/Case-Schiller index, showed a drop of 15.4 percent in home prices, but also revealed that prices were falling at a slower pace than in previous months.

“If you look at the year-over-year numbers they are still going down but not accelerating to the downside quite as much as they had been in a number of cities,” said David Blitzer, chairman of the index committee at Standard & Poor’s. “So we are seeing hints of bottoms.”