The 30-year fixed-rate mortgage averaged 6.14%, up 3 basis points from a week ago and 1 BPS from a year ago, Freddie Mac’s latest Primary Mortgage Market Survey showed.

“Stronger-than-expected inflation reports and retail sales for November put upward pressure on long-term interest rates late last week,” Frank Nothaft, Freddie’s chief economist, said in an announcement. “However, ensuing data releases suggested further weakness in the housing market over November and December and allowed interest rates to drift back down. The net effect left mortgage rates little changed this week.”

In the second half of 2007, the subprime mortgage crisis and concerns over liquidity within the banking system prompted a flight to quality to Treasury securities, driving down yields, particularly for Treasury bills and 2-year Treasury notes. The credit market sentiment shift to an overall aversion to risk resulted in a steeper yield curve, A.M. Best Co. reported.

Last month, implied yields on Treasury bills fell sharply as money market investors shunned asset-backed commercial paper. The considerable widening in the spread between 2- and 10-year Treasury notes since the second quarter points to slower economic growth. Other interest rate benchmarks such as the London Interbank Offered Rate remain high as banks face year end funding pressures and their own liquidity needs, with significant cash needs emphasized by the 1-month LIBOR’s eclipse of the 3-month LIBOR at November’s end, A.M. Best added.

This afternoon, the benchmark for long-term mortgage rates, the 10-year Treasury note yield, was reported at 4.00% — 17 BPS lower than a week ago and down 23 BPS for the day.

Through January, mortgage rates are expected to rise, according to 56 of the 100 mortgage industry panelists surveyed by Bankrate.com this week. A third of the panel forecast a downturn and the rest thought rates will remain relatively unchanged in that time.

The Mortgage Banker Association’s December forecast has the 30-year average ending the year at 6.2%, falling to 5.9% for the first half of 2008 and at 6.0% in the second half.

The 15-year averaged 5.79%, edging up 1 BPS from last week, Freddie reported.

Both of the Treasury-indexed adjustable-rate mortgage averages tracked by Freddie inched up 1 BPS from last week, to a reported 5.90% for the 5-year hybrid and to 5.51% for the 1-year ARM, though U.S. Department of Treasury data showed the yield on the 1-year Treasury bill itself jumped 10 BPS within a week to 3.26% Wednesday.

The 6-month London Interbank Offered Rate averaged 4.83% this week, sliding 13 BPS within a seven-day period, according to Bankrate.com.

The ARM share of applications increased slightly to 10% during the week ending Dec. 14, the Mortgage Bankers Association reported.

Overall mortgage application volume, however, sank 20% from the previous week’s level, reflecting a 27% downturn in refinance requests and an 11% decrease in purchase money demand, MBA said.

The refinance share of mortgage activity decreased to 53% from nearly 58% a week earlier, MBA said.