It is the latest twist in the gravity-defying world of the high housing prices and exotic low-rate mortgages: As monthly payments on adjustable-rate mortgages are starting to balloon, many Americans have found a way to put off the day of reckoning.

Betting Everything on the House

They are refinancing with new adjustable-rate mortgages that keep monthly payments low — for now, that is, though their payments will likely rise even higher in the future.

“Some people would say I am a little crazy,” acknowledged R. Lance Perry, 42, of Danville, Calif., one of the new breed of people refinancing their mortgages. But faced with a sharp increase in his monthly payments and a need to take cash out of his home, he refinanced earlier this year to keep his payments the same.

By the time the rate goes up, he figures, his income will have increased enough to cover the higher payments, he will have refinanced again or he will have moved.

Like Mr. Perry, millions of Americans have turned to adjustable-rate mortgages, or A.R.M.’s, in recent years to afford a home as prices soared.

Typically set at artificially low rates in the first years of the loan, these mortgages are then reset at the prevailing interest rates. For borrowers, the bet was that interest rates would remain low.

Now, the first big wave of the mortgage boom is cresting as more than $400 billion worth of adjustable-rate mortgages, or about 5 percent of all outstanding mortgage debt, will readjust this year for the first time, according to Loan Performance, a research firm. Next year, another $1 trillion in loans will readjust.

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Leslie Appleton-Young is at a loss for words.

The chief economist of the California Assn. of Realtors has stopped using the term "soft landing" to describe the state’s real estate market, saying she no longer feels comfortable with that mild label.

"Maybe we need something new. That’s all I’m prepared to say," Appleton-Young said Thursday.

The shift in language comes as debate over the real estate market is intensifying. The long-awaited drop-off is happening, but there’s little agreement about how brutal the landing will be.

Federal Reserve Chairman Ben S. Bernanke said in congressional testimony Thursday that the national housing downturn so far appears orderly.

At about the same time, however, D.R. Horton Inc. Chief Executive Donald Tomnitz was telling analysts that the home builder’s sales in June "absolutely fell off the Richter scale." Horton, the nation’s largest builder of residential housing, has numerous projects in California.

For real estate optimists, the phrase "soft landing" conveyed the soothing notion that the run-up in values over the last few years would be permanent. It wasn’t a bubble, it was a new plateau.

The Realtors association last month lowered its 2006 sales prediction from a 2% slip to a 16.8% drop. That was when Appleton-Young first told the San Diego Union-Tribune that she didn’t feel comfortable any longer using "soft landing."

"I’m sorry I ever made that comment," she said Thursday. "When I get my new term, I’ll let you know."

If there’s one group in California still unreservedly bullish on real estate, it might be the throngs lining up to take the licensing exams.

Latimes

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