Interest rates on U.S. 30- and 15-year fixed rate mortgages continued to decline in the latest week, amid expectations the Federal Reserve will cut interest rates when it meets later this month, Freddie Mac said on Thursday.

U.S. 30-year fixed rate mortgages averaged 6.83 percent in the week ending January 18, down from 7.06 percent last week, while 15-year mortgages slumped to an average 6.31 percent from 6.55 percent.

Both the 30- and 15-year rates were the lowest since the week ended Nov 23, when interest rates on 30-year mortgages stood at 6.75 percent and 15-year rates averaged 6.24 percent.

One-year adjustable rate mortgages (ARM) fell to 5.08 percent, down from 5.26 percent a week ago.

A year ago, 30-year mortgages averaged 7.02 percent, 15-year mortgages 6.63 percent and the ARM 6.64 percent.

"In his speech to the Bay Area Council Conference last Friday, Federal Reserve Chairman Alan Greenspan remarked that we were not out of the woods yet, leading the financial markets to suspect another rate cut may be in the offing," said Frank Nothaft, Freddie Mac chief economist.

"This brought about this week's drop in interest rates in anticipation of such an event."

The Federal Reserve's policy-setting committee will meet on January 29 and 30, and some analysts believe it could cut rates for the 12th time in the last 13 months.

A reduction of rates would make it less costly for consumers to refinance existing mortgages rates or purchase a loan to begin construction on a new home.

The housing market has remained relatively solid, amid an economy which is struggling to recover from a recession that began in March and was further battered by the September 11 attacks in Washington and New York.

Construction of new houses fell 3.4 percent in December as building activity dropped to more moderate levels after a warm autumn, the Commerce Department said Thursday.

Builders began work on new homes at a 1.570 million unit annual rate last month, down from a revised 1.625 million pace in November. But despite the drop in overall housing starts, the largest component of the index -- starts on single-family homes -- rose 3.6 percent.

"Last year was the third strongest year in housing starts since 1987 and housing starts should continue to be robust as the new year progresses," said Nothaft.

Freddie Mac said new construction of U.S. homes this year will be about 1.6 million units.

The home loan financing company said lenders charged an average 0.7 percent in fees and points on 30-year mortgages and the ARM, down from 0.8 in the previous week. They charged 0.7 percent on 15-year mortgages, unchanged from a week ago.

Freddie Mac is a corporation chartered by Congress that buys mortgages from lenders and packages them into securities for investors.