Following last week's sharp drop in Treasury yields, mortgage rates fell for the third consecutive week to its lowest this week. This comes on the back of Federal Reserve Chair Janet Yellen's remarks to the Economics Club of New York on April 5.

The 10-year benchmark Treasury bond had been on a steady decline for the last two months, but last week marked its biggest as rates plummeted by more than 10 basis points. Since loans tend to follow the movement of long-term notes, mortgage rates also nosedived to their lowest levels in nearly three years.

Bankrate's mortgage survey for this week shows consistent declines. The survey is taken every Wednesday from the top 10 banks and thrifts in the top markets. The results are:

- 3.75 percent for the 30-year fixed vs. 3.83 percent last week

- 3.01 percent for the 15-year fixed vs. 3.09 percent last week

- 3.12 percent for the 5/1 ARM vs. 3.28 percent last week

Bankrate also has a panel of mortgage experts that meets weekly to predict rate trends for the next seven days. 46 percent of this week's respondents expect mortgage rates to continue to be on the downtrend while 18 percent expect the rates to go up. The remaining 36 percent don't see any significant change.

Rosy Picture?

A coin has two sides.

Low interest rates stimulate the economy. Reduced rates help spur business spending on capital goods and household spending on consumer durables like homes, cars, household appliances and the like.

Low interest rates also means lower savings landing in banks and other financial institutions and more money to spend. An increase in the purchases of goods, services and securities assets raises the price of these commodities. As the chain reaction flows with no artificial interventions, the economy becomes vibrant.

On the other hand, some economists believe that a low interest rate scenario may cause a rush for fixed asset investments like houses and other real estate assets. If uncontrolled, competition may lead to speculative valuation just like what happened during the 2003-2004 real estate bubble where mortgage values were higher than they really were. Investors who don't find interest in low-yielding bonds and bank placements are then lured to invest in subprime mortgage-backed securities where they can expect higher returns.

As record mortgage rate lows are recorded, Fed Reseve Chair Yellen said that this has helped buffer the U.S. from the impact of turbulence abroad.