Hangouts application not always suggesting my contacts when searching I store all of my contacts under Google Contacts, which my Android phone uses/syncs (i.e., the Contacts application lists these, and only these, contacts).

I recently searched for "sergio" under the 2nd tab of Hangouts by clicking the "+" button to generate a new SMS message. I have at least one contact with this matching first name, yet Hangouts only suggests random strangers with this name, none of which are my contact.

After this failed, I used my Contacts application to find his record, where I clicked the sms/message icon. This redirected me back to Hangouts where an existing SMS conversation was loaded.  Subsequently when searching for "sergio", Hangouts now lists my contact under Phone Contacts, ahead of the random strangers it lists below that.

For other contacts, they just show up when I search. I can't find any difference between those contacts that don't show up and those that do.  Any ideas if this is a bug or a feature?  If it is a feature, how can I get all my phone contacts to always show up before random strangers when searching?
For those asking for a clearer, illustrated answer:


Click on the (+) New conversation
On the right hand of the search box, click on the really-nonobviously-a-modality-switch phone icon:


Search will now be limited to your Google contacts. 


Presumably some designer made a bizarre choice to use a phone call icon to represent the phone address book.

Note:  When texting rather than calling, be careful not to click on the contact name rather than the small SMS icon on the far right as this will immediately initiate a phone call.  (credit to Dan Csharpster)