One thing about recent mortgage rates trends - they are worth talking about! For years I have been a financial commentator, and for years I have been looking at recent mortgage rates trends, trying feebly to extract some angle or twist which will make the recent mortgage rates trends in some way interesting.

Often, I have been reduced to simply commenting that the rates are X%, which is pretty much what we expected, and leaving it at that.

The past year or two, however, has been a glorious and fascinating epic journey into the unknown. Recent mortgage rates trends have defied all long-range predictions. Back in '07, when mortgage rates were sliding down towards 6%, all the pundits were saying that it couldn't last much longer. I mean we were talking mortgage rates lower than had been seen at any time since the oil price shocks to inflation in the early 1970s.

Recent Mortgage Rates Trends In Context

People have short memories. Even people who lived through the 1960s seem to have forgotten what life was like then.

We all worked hard, saved our deposits, and crept into the bank manager's office, caps in hands, to beg for the opportunity to have a mortgage. Life was simple back then - no credit cards, nobody would dream of taking out a personal load for anything as frivolous as a holiday, and the corner store would keep a tab for you, which you paid in full on payday.

In this environment, with full employment, rising real wages, low inflation, and conservative credit practices, mortgage rates didn't need to be particularly high. Not many people defaulted on mortgage payments - that was the same level of social death as getting a divorce or having a child out of wedlock. Just not done.

Because there were few defaults, banks had little risk of losing money on a mortgage, and therefore didn't add much of a risk premium to their wholesale borrowing costs. Inflation was low, so there was little inflation component in mortgage interest rates.

Taken together, all these factors produced mortgage rates around 6%.

Recent Mortgage Rates Trends - After The Oil Shocks

The financial landscape changed dramatically in the 1970s. Oil prices rose sharply, feeding into inflation. Because there was no appreciable increase in economic activity, inflation was coupled with stagnation rather than economic growth - the dreaded "stagflation'.

At the same time, banks started issuing credit cards to the masses, producing a massive debt-fuelled growth in consumption in subsequent decades. The effect of the credit was to flood more money into an inflating economy, pushing inflation to record highs.

Inflation feeds directly into interest rates, and by the late 80s, mortgage rates were in double figures - going up as high as 18% or more before the recession of the early 1990s curbed inflation and consumer demand.

As the economy pulled out of the recession, a long period of economic growth caused a sustained boom is both housing and stock markets.

Recent Mortgage Rates Trends - The 21st Century

The Tech Crash and subsequent restructuring of the share markets left the average American blissfully untouched. Property values in Silicon Valley plummeted from fantasy-land to merely ridiculous, and a bunch of investment bankers and stock brokers cried in their coffee for a while, but housing kept booming along in the wider market, and official interest rates kept sliding gradually lower.

As the baby boomers entered their massive accumulation phase prior to retiring, money flowed into the share market and into cash management accounts in financial institutions. All that money needed to be invested, so credit was easy to obtain, and easy credit plus falling interest rates fed back into rising housing prices.

By 2007, mortgage rates were lower than they had been in 30 years.

And then, a time bomb went off.

Back in the early years of the 21st century, financial institutions started issuing mortgages to people who couldn't actually afford to pay the interest. The reasoning was that if the bank kept the payments low for a few years, wages would go up, and eventually the borrower would be able to make the full mortgage payments. The shortfall each month could just be added onto the mortgage, because the house would keep going up in value, and over time it would all work out.

Except it didn't.

Wages didn't go up enough, and at teh five-year mark, when the monthly mortgage payments jumped up to their true level, thousands of families became unable to pay their mortgages.

When one person can't pay their mortgage, they have a problem. When thousands of people can't pay their mortgages, the bank has a problem.

To stave off mass foreclosures followed by multiple bank failures, the government stepped in to support lenders, borrowers, and companies in vital industries. As part of the overall plan for avoiding another Great Depression, the Fed progressively lowered interst rates throughout 2008 and 2009.

These reductions in Federal rates - which affects the price banks pay when they borrow money - were partly absorbed by the banks in greater "spreads" to allow for a higher risk of default, and were partly passed on to borrowers in the form of reduced mortgage rates.

So recent mortgage rates trends have taken mortgage rates from a historical low to a truly historic low, and there is likely to be another fall or three before the recession bottoms out.