"The Federal Reserve's concern about the prospects for slowing economic growth caused investor jitters to drive down mortgage rates by the largest amount in over 10 years," said Sam Khater, Freddie Mac's chief economist. "Despite negative outlooks by some, the economy continues to churn out jobs, which is great for housing demand."

The average rate on the 30-year fixed-rate mortgage fell to 4.06 percent with an average 0.5 point for the week ending Thursday, down from last week when it averaged 4.28 percent, according to Freddie Mac. A year ago at this time, the 30-year fixed-rate mortgage averaged 4.40 percent.

Homebuyers got a big boost to their purchasing power this week thanks to falling mortgage rates.

Closed home sales jumped dramatically in February, compared with January but were still lower annually. Pending home sales in February, which measure signed contracts, were slightly lower monthly and nearly 5 percent lower annually. Mortgage rates in February were around 4.5 percent, below the 5 percent range last November, but not as low as today.

"We expect a continued rise in purchase demand," added Khater.

Homebuyers, however, are still facing overheated home prices and low supply of homes for sale. Home price gains are shrinking, but some markets are still beyond the reach of most entry-level buyers. Mortgage applications to purchase a home moved higher last week, as rates fell.

"What happens in the coming spring months is what is most relevant for the industry and in our attempt to gauge how consumers respond to lower mortgage costs," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "The weekly purchase mortgage data seen yesterday points to a possible green shoots start."

Lower mortgage rates certainly boost buying power, but the reasons behind lower rates, namely a weaker economy, could diminish buyer confidence. That may be part of what's behind the drop in pending sales.

"This suggests a mixed sales trend may be on the horizon for spring, as buyer confidence, boosted by more homes and lower mortgage rates, may be challenged by concerns about whether economic growth can continue," said Danielle Hale, chief economist at realtor.com.

An important read on the economy, the monthly employment report, is set for release at the end of next week. It could move rates dramatically in either direction.

WATCH: Pending February home sales miss expectations