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URL:  http://boards.fool.com/hey-splotto-not-sure-if-the-the-rationale-that-20597431.aspx

Subject:  Re: FED, Rates & Housing Date:  4/6/2004  10:51 AM
Author:  benhancockjr Number:  9870 of 35392

Hey Splotto,

Not sure if the the rationale that homeowners are better off with ARMs is that far off the mark. The majority of homeowners refinance (in rising and falling interest rate environments) or move on average every 7 years. Therefore, they pay a huge premium for carrying a 30-year fixed mortgage. It's like buying insurance you don't need. I think the ARM vs. 30-year fixed argument is situation specific. If I know I'm going to move in a few years why would I even consider a 30-year fixed? If you know you'll be in the house for 10+ years maybe a fixed-rate is the way to go.

As for the housing bubble, I'm admittedly spooked. My wife and I live in Arlington, VA, and we regularly go to open houses in our neighborhood to provide a basis of comparision for what our townhouse might be worth. I'm shocked at what people are asking and getting. I was convinced that when we bought our place two years ago, we were at the top of the market. Instead, we've seen double-digit increases each year. One good thing: Rentals are still comparably priced in our neighborhood. Nevertheless, my wife and I are considering selling by the end of the summer and moving somewhere more affordable.

Curious what everyone else thinks about a potential bubble?

Ben
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