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

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.

"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."

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.

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.