patrick.net

the person writing this is incredibly stupid, or the author is hoping the reader of this tripe is incredibly stupid, but probably both.

Myth # 11: Paying cash for a home is not good!

APOCALYPSEFUCK says

WOW! A Chinese guy just knocked on my door and said he will trade me my house for his house in Zhengzhou that is worth $5 million!

My father is a contractor and recently, all his clients have been from overseas. They buy (in cash) and hire him to renovate.

The MLS has now integrated some features for international buyers.

Seems the farmers from China have been listening to your advice. Plant potatoes!

This might be the dumbest thread ever made on Patrick.net. It couldn't be more filled with false equivalencies and NAR-like propaganda had it been written by Lawrence Yun himself.

RobSTL you are just trolling man, it's pretty obvious when you say there was "no housing bubble".

"This might be the dumbest thread ever made on Patrick.net. It couldn’t be more filled with false equivalencies and NAR-like propaganda had it been written by Lawrence Yun himself."

So then discredit the post point by point instead of taking the easy way out.

vain says

APOCALYPSEFUCK says

WOW! A Chinese guy just knocked on my door and said he will trade me my house for his house in Zhengzhou that is worth $5 million!

My father is a contractor and recently, all his clients have been from overseas. They buy (in cash) and hire him to renovate.
The MLS has now integrated some features for international buyers.
Seems the farmers from China have been listening to your advice. Plant potatoes!

Gotta love American; when stupid runs out of steam here, stupid from overseas comes a knocking.

HousingWatcher says

So then discredit the post point by point instead of taking the easy way out.

It's already been discredited above. He had two semi-decent/truthful points, and a lot of realtor bullshit. Not worth wasting an hour to shoot down propaganda points that have already been torn to shreds.

"Myth #1 : Home prices flat or falling is good for future generations"

Depends on what "future" generations we're talking about. If we're talking about people who bought homes way over their heads- then yeah- I would agree that falling bubble home prices is bad- for them- because they bought in a false economy. If we're talking people like me and my wife who elected not to play during the housing bubble then yes- falling home prices are a GREAT thing and personally I hope they continue to fall.

"Myth #2 : Home prices rising is bad for the economy"

Its a bad thing primarily because in a few short years the US went from being an economy based more on actual economic production to one that relied almost exclusively on housing debt- which is non productive. This in turn helped to further drain the pockets of the middle class.

Myth #3 : There is low inflation in the USA"

This one I agree with.

"Myth #4 : There was a huge home price bubble in the USA"

Given that my wife and I make close to 200k and were basically priced out of the market where we live is a perfect indication of the existence of a huge bubble. I think the bubble was the frothiest in a great many of the primary 1st tier cities-aka- Boston, NYC, Chicago, SF, LA, SD, and so on. Some areas were cheaper. But the bottom line is that the lion's share of our most economically productive cities were in a huge bubble. Such was the case that there are now a whole slew of rapidly growing 2nd tier cities like Austin, Raleigh, and so on- cities that are attracting a lot of younger families primarily because the 1st tier cities are too pricey.

"Myth #6 : Home prices collapsed in the USA because they had become too unaffordable"

Given that in 2006 as much as 70% of all houses being bought in the Bay Area were using some sort of exotic loan product tells you that prices had not only become unaffordable, but that the only way most people were buying was by using loan products that today no longer exist. If anything, exotic loans inflated prices far beyond even extreme fundamentals. This is why the crash has been especially painful because prices not only had to fall back below levels prior to the introduction of exotic loan products, but they are now falling back to pre-bubble levels in addition to that.

"Myth #7 : Median home prices should be at most 3 times the median income to be affordable"

At the height of the bubble prices were 9 times median income in the Bay Area- or about 3 times as much as the maximum recommended multiplier used for the better part of 100 years. Why that measurement should suddenly increase is beyond me.

"Myth #8 : Jobs recovery will lead to a housing recovery"

The US needs to re-evaluate how it grows its economy. It can't always be about housing because that means growing an economy off the debts and backs of the middle class- which as previously mentioned was already drained of their wealth from the bubble. That scheme isn't going to work unless we get back to having real and meaningful, productive, profitable jobs that puts money back in our pockets. Until that occurs there will be no real housing market recovery- which as far as I'm concerned is fine and dandy. I hope housing stays flat for decades.

"Myth #9 : Renting is cheaper than buying in the USA"

Really depends on the city. I'm paying under $2,000 a month for a 4 bedroom house that would cost me close to $4,000 a month in house payments if I were to buy it.

"Myth #10 : Homes should not be considered investments but merely shelter"

Housing is nothing more than a liability. Very few of today's richest people got rich selling houses back and forth. Most invested in the stock market or worked for companies creating profitable products. Anyone that claims real estate is where its at obviously doesn't know econ 101 and the fact that nation-wide, real estate at best tends to appreciate around 3-4% annually over the long term versus stocks that tend to gain 7-7% annually over the long term. $100,000 invested in stocks will make you a richer person faster than sticking it in a wooden box. Yet because buying houses gives people fuzzy feelings they buy them as "investments".

So indeed- about the only thing a house does is keep your crap dry and give you a place to eat and sleep. If we buy a house its only purpose will be those above things. Oh- and to keep my various collections of weird antiques from getting wet.

"That scheme isn’t going to work unless we get back to having real and meaningful, productive, profitable jobs that puts money back in our pockets. Until that occurs there will be no real housing market recovery- which as far as I’m concerned is fine and dandy."

And if that happens one day you and your wife will lose your jobs along with everyone else. Be careful what you wish for.

HousingWatcher says

And if that happens one day you and your wife will lose your jobs along with everyone else. Be careful what you wish for.

What I'm saying here is that we need to switch our economy back to one that isn't reliant almost entirely on debt. The tech and housing bubble were mere coverups for the underlying problems we currently have- which is the existence of a non-productive economy. Housing should never be the primary driving force behind an economy.

"What I’m saying here is that we need to switch our economy back to one that isn’t reliant almost entirely on debt."

I agree. But that is never going to happen.

edvard2 says

I’m paying under $2,000 a month for a 4 bedroom house that would cost me close to $4,000 a month in house payments if I were to buy it.

For a $600,000 home with 3.5% down a 3.25% 5-year ARM the PITI is $3700 but the actual after-tax cost of interest, PMI and property tax is around 70% of 3.25 + 1.15 + 1.2 or ~4%, so the rough rent-equivalent here (not counting maintenance and upkeep) is under $2000/mo!

hmm, I now think the 5/1 FHA ARM is a pretty decent way to go, if home prices don't tank from here, since for this decade I think we'll only see higher treasury rates in response to wage and house inflation.

With a $10T national debt the PTB simply can't afford to raise rates. It's going to have to be an exogenous event, and in that case, there's always the option of letting the bank have the house back.

Troy says

For a $600,000 home with 3.5% down a 3.25% 5-year ARM the PITI is $3700 but the actual after-tax cost of interest, PMI and property tax is around 70% of 3.25 + 1.15 + 1.2 or ~4%, so the rough rent-equivalent here (not counting maintenance and upkeep) is under $2000/mo!

Are you actually arguing that a $600k house will cost less than $2000/mo if you bought it? Lay out your shoddy math more clearly if that's the case.

Troy says

I now think the 5/1 FHA ARM is a pretty decent way to go

You've moved from one indefensible position of "low down payments are good" to defending FHA ARMs. You're on a roll.

has nobody yelled out TROLL yet??

come on, no one posts this crap on this sort of a website and expects to NOT get hung

Troy says

For a $600,000 home with 3.5% down a 3.25% 5-year ARM the PITI is $3700 but the actual after-tax cost of interest, PMI and property tax is around 70% of 3.25 + 1.15 + 1.2 or ~4%, so the rough rent-equivalent here (not counting maintenance and upkeep) is under $2000/mo!

-Of course... maintenance and upkeep not being figured in is a significant thing. Last time I checked its around $20,000 for a new paint job, around $30,000 or more for a new roof , and at least 100k for anything major to be done to the foundation. Oh- and don't forget that in many cases the NIMBY laws will prevent you from doing certain things to your home anyway. There is absolutely no way I will ever use an ARM. Using an ARM probably means you shouldn't be buying to start with.

Buying a $600,000 house means you're going to be out at least $4,000 a month if not more. The house in question would be a starter home too. I can buy a nice old house in Austin- a house with character and within walking distance to downtown- for under $200,000. I have no plans on buying in the Bay Area or California.

RobSTL says

Rising home prices and inflation helps wipe out loans

Not really. In order for rising home prices to wipe out loans, you have to *sell* the house and keep the proceeds.

If you take out a home equity loan to pay off other loans, you are still in debt, and you owe more money for housing so you spend less on other stuff. If you buy another house with debt, you're still in debt, and you owe more money for housing, so you spend less on other stuff.

If you sell the home, invest the proceeds, and rent, then you are not in debt and have money to spend on stuff other than housing.

Debt is not wealth.

RobSTL says

Regarding myth buster #8 : As home values rise, home owners feel wealthier, and spend on goods and services, leading to the retail sector creating jobs. As home values fall, the opposite happens as evident over the past 5 years in the USA. People spend less, and retailers cut jobs. Not sure why this is not obvious.

Confidence is not the same thing as wealth. The fact that people aren't saving because they think their paper winnings on their house might save them is not a good thing. Again, until you sell, you have nothing.

SF ace says

Roofing for 30K, try 5K in San Francisco.

Depends on the roof and the materials. In San Francisco, many houses tend to be tall but not huge in land area, so they have less roofing area. However, even $5K is a lowball. The permitted costs I've seen in SF are $8-10K, and permitted costs usually underestimate the true cost.

RobSTL says

As home values rise, home owners feel wealthier, and spend on goods and services, leading to the retail sector creating jobs. As home values fall, the opposite happens as evident over the past 5 years in the USA. People spend less, and retailers cut jobs. Not sure why this is not obvious.

So we should fool people into feeling wealthier than they really are? We should manipulate the market to give them phony equity, manipulate them to spend indiscriminately?

I have a better idea: people should spend what they have and on things they actually want and need. Their house should be worth what somebody else is willing to pay (not what the govt is bribing them to pay), and their equity should be derived from that price minus what they paid for the house plus their down payment and principal payments.

These simple, low-risk, fiscally sane, old-school concepts are offensive to those who subscribe to the tenets social engineering and psychological manipulation of the plebs.

SF ace says

Are u a contractor?, heck no.

20,000 for paint job. 500 cost, 19,500/50 hrs = 390 hours to paint? 49 man/days? I’ve never seen a paint job that takes more than 10 man/days.

Roofing for 30K?, umm I paid 3K for labor and bought my own materials (less than 2K).

Believe it or not I used to sell paint for a living so I have some experience in that area. You figure a decent quality exterior paint is going to cost you around $40 per gallon. Figure the average 2-3 bedroom house is going to need around 20 gallons of paint minimum, or $800. Most decent painting contractors are going to do a lot of prep work- meaning scraping, priming, etc etc. These days you have to use a lot of precautions such as setting up barriers, collecting paint chips, and so forth. One of our contractor buyers had a year's worth of work and on average charged between $12,000-$20,000 per house. He did good quality work. That isn;t to say you couldn't just hire a fly-by-night contractor to come in and spray the whole house. A house across the street from me was flipped during the bubble. They came in and sprayed the whole thing- no prep or cleaning. House looked good for about a year. Now it looks like crap.

SF ace says

Actually for the right buyer using traditional 20% down prime floating rate, it can be as low as 1,500 per month including about 200/month in upkeep.

480,000 * (3.25+1.25) * 67% = 14,472
14,472 /12 = 1,206
Insurance 100
Maintenace 194
1,500

... so we're talking about the absolute best-case scenario with a $100,000 down payment? Well sure- why not throw in $200,000 then it'll be even cheaper. Seriously. 100k for a down payment? I can think of about 100 different better things that I could do with 100k... like buying a 150k house in TX for instance instead of putting a down payment on some overrated starter home in the Bay Area.

klarek says

Are you actually arguing that a $600k house will cost less than $2000/mo if you bought it? Lay out your shoddy math more clearly if that’s the case.

I'd be happy to.

$600,000 house, 3.5% down 4.3% FHA, $579,000 starting principal

Over 30 years:

P&I: $997126 ($2865 x 360) less $579,000 principal leaves $452,500 in total interest costs.

8.5 years of PMI ($6660/yr) is $56,600, for a total interest cost of $509,000. Add in the 1.25% property tax ($7500/yr, $225,000 total) we get a rough cost of ownership of $734,000.

This is all tax deductible, so net the 35.2% tax benefit this is down to $476,000 in total interest and taxes, or $1320 per month on average.

Adding in other ownership costs:

Insurance: $1350/yr
Utilities: $1200/yr
Maintenance Accruals: $2100/yr

that average out to $400/mo this brings the TCO of the $600,000 house to $1720 per month on average over the life of the loan.

If we take out 15 year loan the interest rate falls to 3.5%, PMI payments fall to 3.25 years, this average per-month expense falls to $1500/mo over the first 15 years.

Beats renting!

edvard2 says

Buying a $600,000 house means you’re going to be out at least $4,000 a month if not more.

This is counting principal repayment, making this a deceptive comparison.

I actually made this mistake in 2000-2001, deciding to remain renting for $800 instead of taking on a $2500 mortgage payment like I should have.

None of this matters to me. A $600,000 house is still absolutely loonie and there is no way in hell I will ever spend that kind of money on a wood box since that's a good waste of money that earns me more money in investments and stocks. I actually make enough to buy a $600,000 house if I wanted but it goes against my principle. Of course many think its just a swell idea and I'm sure there are many little tricks that can be made to somehow get those payments down ( I'd like to see that) below renting. All I know is that it's not going to be that much longer before we can move out of here and buy a house for cash in a cheaper state and basically have zero debt and lots of retirement savings. Maybe all of the folks who think 600k for a house is a steal will remain here.

Oh- and by the way- I actually LIKE renting. I've got a big back yard, a nice house, garage, live in a safe neighborhood, pay below average rent AND I can pack up and move anytime I want. Sure beats owning!

Troy says

I actually made this mistake in 2000-2001, deciding to remain renting for $800 instead of taking on a $2500 mortgage payment like I should have.

Your mistake was not renting for $800. Your mistake was not saving $1700/mo in a bank account, and spending it instead. Housing functions as forced savings, but it's not efficient forced savings.

Btw, 30-year fixed rates through a lot of 2000 were above 8% (up to 8.5), so you're talking about a $300K house back in 2000? What does that same house cost now?

Troy says

Over 30 years:

You never said this was over 30 years. The average American family moves every seven years. Further, you JUST SAID that the 5/1 ARM makes sense. You're making up and changing the rules every post you make.

Troy says

This is all tax deductible, so net the 35.2% tax benefit this is down to $476,000 in total interest and taxes, or $1320 per month on average.

PMI is not tax deductible and the average deductible percentage per filer is way below your assumption there. Then again, you're framing this around someone purchasing a $600k house which would mean a salary more than TRIPLE the U.S. household average, another example of a complete distortion of your original statements (something about the poorer people not being able to own, right?) to make other pieces fit (maximize the MID, need a higher salary and higher debt load). And your assumption here is assuming that the MID will remain even though govt is in some sort of planning phase of getting rid of or marginalizing it.

Also, where are the property taxes in your math? Those won't remain fixed you know.

Troy says

that average out to $400/mo this brings the TCO of the $600,000 house to $1720 per month on average over the life of the loan.

If you're going to assume maximum deductions, no increase in taxes/insurance/maintenance, and a 30 year duration of ownership, then I'm going to assume that rents will never rise, the MID is going to be eliminated, and that the family in your model there will be moving in seven years and have wasted all their DP money and PMI payments for nothing.

Troy says

I actually made this mistake in 2000-2001, deciding to remain renting for $800 instead of taking on a $2500 mortgage payment like I should have.

Do you live in the DC area? I'm quite sure I can convince you to buy my $15k car for $45k. I'll take a check if you'd like. Great condition, have all the maintenance records.

corntrollio says

Your mistake was not renting for $800. Your mistake was not saving $1700/mo in a bank account, and spending it.

What's really pathetic is that his "lesson" after ten years was excluding this massive dollar gap.

klarek says

You’ve moved from one indefensible position of “low down payments are good” to defending FHA ARMs. You’re on a roll.

I was surprised at how low 5/1 ARMs are, 3.2%, plus 2% on the 1-year treasury, rate cap of 8%.

http://research.stlouisfed.org/fred2/series/GS1

This is a lower rate than the 15 year loan. If one pays down the balance at a 15 year amortization rate to lose the PMI quicker this could be a very viable investment and cash-management strategy -- a very low interest rate exposure during the meaty part of the loan, a required monthly housing expense of only $3200 (this includes $1000/mo of principal paydown starting out).

What is left is the 8% interest risk down the road, but chances are if rates are 8% this house will be boosted up to a million, since the Fed can now only raise rates in response to general wage inflation.

If rates go up exogenously (ie wages are still down), housing will be slaughtered, but the buyer can just walk away since this is a non-recourse loan.

This:

http://research.stlouisfed.org/fred2/series/FYGFD

is the main reason why the Fed has lost the power to raise rates.

The higher the debt goes, the lower the rate has to go:

http://research.stlouisfed.org/fred2/graph/?g=C8

Welcome to the liquidity trap.

Troy says

I was surprised at how low 5/1 ARMs are, 3.2%, plus 2% on the 1-year treasury, rate cap of 8%.

http://research.stlouisfed.org/fred2/series/GS1

This is a lower rate than the 15 year loan. If one pays down the balance at a 15 year amortization rate to lose the PMI quicker this could be a very viable investment and cash-management strategy — a very low interest rate exposure during the meaty part of the loan, a required monthly housing expense of only $3200 (this includes $1000/mo of principal paydown starting out).

What is left is the 8% interest risk down the road, but chances are if rates are 8% this house will be boosted up to a million , since the Fed can now only raise rates in response to general wage inflation.

Are we in a time warp here? Am I hearing echoes from 2005? What you're saying there (and above with your "if prices stop falling" assumptions) are almost word for word what each of us heard from bubble-denying mortgage-pushers and realtors during the housing bubble. If one tried to argue about how incredibly stupid ARMs were, they'd just turn it into an idealized "but rates are so low that you can just pay it off and blah blah blah" which of course nobody did.

klarek says

What’s really pathetic is that his “lesson” after ten years was excluding this massive dollar gap.

My rent has risen from $800 to $1600/mo in the past 10 years.

The condo I could have bought for $350,000 in 2000 could have in mid-2003 been refi'd from 8% down to a 5% fixed 15-year ($330,000 principal), and a 3.5% 15 year fixed now ($200,000 principal).

My housing expense (including amortization) would now be $1300/mo, less than my rent for a much superior place to live. My housing expense would fall to $600/mo in 2026 when the last refi is paid off.

This condo has a market value of $450,000 or so today

SF ace says

Troy is just analyzing the numbers. I wholeheartedly agree, the 5/1 arm is the way to go. 30 year fixed is actually a pretty bad deal any way you slice it
Those who think Fannie and Freddie will go away, well, we’ll just see a future of floating rates and likely lower effective interest rates anyway.
make everyday count

It's troll day on patrick.

If you have to use an ARM to buy a house then you probably shouldn't be buying a house. As far as rent goes, well that is going to be different for everyone. I have been renting the same house for 8 years and the landlord has not raised the rent- ever. Mainly because I take good care of the place. In the meantime the house went from being valued at around 800k to now around 500k. So had I bought the house instead of renting I would not only be paying around $5,000 a month instead of the $1,600 I currently pay AND I would be close to $300k underwater at this point. Meanwhile in those 8 years I've invested in stocks, mutual funds, 401k's, bonds, and so on. The value of those investments dipped around 40% but are now back to where they were with most now gaining value- all within the space of less than 2 years. That versus housing which has been in the tank since 2006- or almost 6 years. There is no contest. I have done better financially better then if I had bought a similar property.

edvard2 says

If you have to use an ARM to buy a house then you probably shouldn’t be buying a house

Free money is free money. I don't think the Fed can close the gate on this now.

The world financial system might, but if that happens jingle-mail is a perfectly viable solution.

FWIW, I think buying now is premature. I see a 10-20% downside in housing left, and if I'm wrong it will only be because the economy has returned to late 1990s happy times and life will be easy for everyone.

So waiting for the slow crash to play out, should it come, will bring lower prices and make the wait pay off.

Waiting in a flat market is just a straight rent vs buy calculation. WIth low interest rates, a $2000 rent is about equivalent to a $600,000 house.

And if I wait and prices go up, that's not the end of the world, either.

Troy says

Free money is free money. I don’t think the Fed can close the gate on this now.

Depends on the loan. A LOT of people got into trouble using these because the interest rates ballooned to levels they couldn't afford- as in jumping from a 4% to a 12% interest rate, at which point you're getting money sucked out of your pockets. If you really can't afford current mortgage rates and can't stomach a significant down payment then you shouldn't buy. Besides- banks aren't about to let just anyone. I would not characterize an ARM as "Free money".

thunderlips11 says

Ed, I think you’re numbers are a little off. It cost me $20k to completely refurb a 1930s cottage, including roof, painting, flooring, completely new bathroom, brand new kitchen with new stove/oven/fridge/countertops, electric wiring, residing, and knocking out a few walls and repairing some rotten structural issues. Granted, it was in Oregon, but it can’t be $20k for painting in California

Yes- this is in California and from what I heard thrown around here it almost sounds like you pretty much have to have a qualified contractor to do just about ANYTHING here. The houses I've seen that get repainted around here get completely covered in an enormous tent I assume because of the concern over lead paint chips. One of my buddies tried to buy a house a few years ago: There was some sort of termite certification he was going to have to get and it was some insane amount- as in like over $10,000.

On the other hand when I was a kid me and dad fixed up a house for under 20k. Then again that was the rural south. This is California where anything and everything costs a LOT more than anywhere else.

edvard2 says

A LOT of people got into trouble using these because the interest rates ballooned to levels they couldn’t afford- as in jumping from a 4% to a 12% interest rate, at which point you’re getting money sucked out of your pockets.

Sure, the teaser rate and negative-am with 120% recast stuff was utter madness.

But ARMs themselves actually have been a good deal since 1996.

http://research.stlouisfed.org/fred2/series/MORTGAGE1US

People who bought in 1996-2000 were adjusted down to 4-5% during the bubble, and rates only went up to mid-5s immediately prior to the crash, and since the crash rates have gone down to ~3%.

ARMs didn't cause the housing bubble or make houses suddenly unaffordable when they started adjusting.

If you really can’t afford current mortgage rates and can’t stomach a significant down payment then you shouldn’t buy.

The down payment is neither here nor there. A smaller down payment on a non-recourse loan puts less of one's capital at risk, which is a good thing.

The smaller down payment comes at the cost of carrying a larger mortgage balance with its 3% cost of capital (this includes PMI and the tax bennie).

3% interest cost on a $600,000 investment that you can walk away from doesn't seem like that bad a deal to me.

If this situation is anything like Japan's, interest rates are going to remain low for the life of a 15 year loan.

Not that this situation is necessarily like Japan's.

Troy says

The down payment is neither here nor there. A smaller down payment on a non-recourse loan puts less of one’s capital at risk, which is a good thing.

The smaller down payment comes at the cost of carrying a larger mortgage balance with its 3% cost of capital (this includes PMI and the tax bennie).

3% interest cost on a $600,000 investment that you can walk away from doesn’t seem like that bad a deal to me.

If a person fails to pay their mortgage it will wreck their credit which is why there's no such thing as having "less" risk to capital because at that point there would suddenly be far fewer options. How people assume that walking away from a debt is a good thing is absolutely flabbergasting to me.

$600,000 for a home sounds like a bubblelicious price to me but hey- if that sounds fantastic there's probably around 100+ homes in and around where I live that have owners who would just absolutely love it if someone-anyone- took them off their hands. I have no clue why the houses are just sitting there not selling - $600,000 being such an incredible deal and all- but I suppose now is the perfect opportunity to buy!

male bovine feces

thunderlips11 says

d, I think you’re numbers are a little off. It cost me $20k to completely refurb a 1930s cottage, including roof, painting, flooring, completely new bathroom, brand new kitchen with new stove/oven/fridge/countertops, electric wiring, residing, and knocking out a few walls and repairing some rotten structural issues. Granted, it was in Oregon, but it can’t be $20k for painting in California.

This looks quite off... in northern virginia. :)
One of my relative recently had new floor (engineered oak, 980sf) done at approx. 5.5K, bought new washer/dryer and refigerater at approx. 4K. Bathroom renovation will be anywhere from 5K to 20K depends on what they do. Roof... not sure how much that will be.

edvard2 says

If you have to use an ARM to buy a house then you probably shouldn’t be buying a house.

Are you sure about that? There are legitimate reasons to have an ARM for responsible people who are financially savvy. For example, if you have a proper time horizon in the proper location, it might make sense. To some extent, it could be gambling, but you can mitigate that.

For example, have you seen Pentagon Federal's 5/5 ARM? It makes a lot of sense:

https://www.penfed.org/productsAndRates/mortgages/mortgageCenter.asp

The current rate is 3.5%. When it adjusts every five years, it can only adjust up to 2% each adjustment period, and only up to 5% total. If you consider that for the next 10 years, your cap on mortgage interest is 5.5%, that's not bad. A lot of people move in 10 years. The maximum rate is 8.5%, which is still in the "normal" range of 6-9%, and you can't even hit that rate until 15 years out. This assumes that you do your proper due diligence with respect to other parts of your purchase and are otherwise living within your means, etc.

Done properly, an ARM can be beneficial (and in some countries, it's the only way you can buy property). Done improperly, as many ARMs were during the boom, it can be disastrous. But it's highly dependent on the type of loan. Some of my friends on ARMs are better off right now because LIBOR is at 0.26% right now and has been very low for a while. If you do stupid teaser rates, interest only, negative amortization, Option ARM, and other nonsense loans and you end up getting foreclosed on, you deserve it for not understanding the loan product and not living within your means, but a responsible and financially savvy person can do just fine with a conventional ARM.

Realistically speaking, if the government didn't shore up the secondary mortgage market so heavily, more and more people would be on ARMs.