Friday, March 24, 2006 | Fewer San Diegans are choosing to finance their home purchases using adjustable-rate mortgages and instead employing more conservative borrowing methods, according to figures released Thursday.

Experts attributed the shift to a number of changing factors, from decreasing expectations for home values and increasing short-term interest rates.

In February, 51.9 percent of San Diego’s home buyers financed their purchase using an adjustable-rate mortgage, according to figures released by DataQuick, a San Diego-based real estate information service. Last November, the figure was 70.9 percent.

The difference between an adjustable-rate mortgage and a fixed-rate mortgage is that the interest rate on the former can fluctuate depending on constantly changing economic conditions.

John Karevoll, DataQuick’s chief analyst, said the trend illustrates a shift by consumers toward more conservative borrowing methods, which is indicative of caution in a market that has been noticeably slowing.

“The sense of urgency that permeated the market a few years ago has receded, and we are in a more balanced home buying and home selling environment,” Karevoll said.

That analysis was echoed by Gary London, president of The London Group Realty Advisors in San Diego. He said the downward shift in adjustable-rate mortgage use is not at all surprising considering the current state of the local real estate market.

“I think that people are turning toward the conservative, recognizing that we’re now passed the cycle peak,” London said.

London explained that when people take out an adjustable-rate mortgage, they are essentially counting on interest rates remaining low. Many people foresee interest rates increasing, he said, so it stands to reason that people will move away from the adjustable-rate loans.

Gary Painter, director of research at the University of Southern California’s Lusk Center for Real Estate, said the shift by consumers away from these sorts of loans might not be based on rational factors. Consumers don’t always act in a rational way, he said, and could be turning away from adjustable-rate loans simply because they have seen interest rates rising over the past three months, and that’s what they expect for the future.

“People behave myopically, they think that the trend, as it existed yesterday, is going to continue tomorrow,” he said.

There are a couple of other reasons why borrowers may have shifted away from the mortgages. Earlier this year, Fannie Mae and Freddie Mac, the lending institutions that set the conditions for most fixed-rate mortgages, raised their conforming loan limit. The conforming-loan limit is the maximum amount of money an individual can borrow at a fixed rate of interest. That figure increased from $359,650 to $417,000 on Jan 1, 2006.

Karevoll expects that large increase helped to shift more people towards fixed-rate loans. He said lenders could also be more cautious.

“When you have home prices going up at 20-something percent every year, any mistakes you make will be buried pretty quick. When they’re going up at 10 percent or less in San Diego, the mistakes won’t be buried as fast,” Karevoll said.

The median price of an existing home in San Diego rose 4.6 percent from February 2005 to February 2006, according to figures released by the California Association of Realtors on Thursday.

Please contact Will Carless directly at

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