Adjustable Mortgages Decline in Popularity

There has been a steep decline in adjustable-rate mortgages in Southern California, according to Dataquick Information Systems in La Jolla, which provides real estate data to lending institutions, title companies and industry analysts.

Adjustable-rate mortgages were used to finance 25.7% of Southern California real estate purchases in August. In August, 1988, 61.9% of all real estate buyers in Los Angeles, Orange, San Diego, Riverside and San Bernardino counties chose adjustable-rate mortgages.

“The steep decline reflects lower fixed-rate mortgage rates as well as a narrower gap between fixed-rate and ARM interest rates,” said Donald L. Cohn, president of Dataquick.

Interest rates peaked in March at an average 11.22%.

“A year ago, choosing an ARM often meant being able to buy a home you wouldn’t have qualified for with a fixed-rate mortgage,” Cohn said. “That’s not necessarily the case any more. Lenders have also curbed the heavy discount on initial ARM rates. These ‘teaser’ rates reduced profitability.”

PERCENTAGE OF BUYERS CHOOSING ADJUSTABLE RATES

Aug., 1988 Aug., 1989 Los Angeles 65.9% 30.1% Orange County 72.6% 25.9% San Diego 69.9% 32.5% Riverside 36.0% 15.1% San Bernardino 35.2% 12.0% Total 61.5% 25.7%