I live in just such a market. The place to jump in--the place where *I* jumped in--is when and where you can afford what you're buying. It's not fun. I lived like a pauper for five years when I didn't have to so I could afford to put 20% down and have reasonable 30 year fixed payments, and I bought a very old fixer-upper in a yet-to-be-established neighborhood--but it's what grown ups do.

As I said above, buying with the knowledge that you won't be able to afford payments in five years is an incredibly foolish choice to make. Planning to sell within that time is great, but if property values are going down (and given closing costs and brokers fees, really even not going up that fast), that very well may be impossible. In any event, your last gamble worked out pretty well it seems, so maybe this one will too--and it also appears that you aren't like a lot of people with ARMs who couldn't afford payments under any circumstance when the teaser rates expire.

We are talking about housing sales in upscale neighborhoods by and large.

Let's see. We have midterm elections coming up. What possible motivation could Mr. Drummond have to be talking about this particular subject and expressing what Steve correctly labels as "misplaced pessimism", do you suppose?

In a market like DC's, first-time purchasers simply have to jump in somewhere. Further, when I bought my townhouse, I was 95% sure that I'd move before the 5 years were up. Indeed, the only reason I stayed a full two years was that leaving earlier had significant disadvantages from a capital gains perspective.

On our new house, the difference between an ARM and a conventional is nearly $500 a month. We could swing that if we had to but at significant cost to our lifestyle. We figured the potential risks at the end of the 5 year period were well worth the known benefits.

Yes, in an appreciating market, most people will sell their homes before the interest rates spike up on their 5/1 or 7/1 ARMs. Unfortunately, if the market is depreciating or flat between purchase and sale, that's probably not going to be the case--few people are going to sell their homes for a lot less than they paid for them (especially once closing costs and brokers fees are included), except as a matter of last resort.

Quite frankly, if the reason that you opted for an ARM is that you couldn't afford 30 year fixed payments, then that was a deeply irresponsible choice to make. Being able to earn more than the interest you'd pay on a standard mortgage? Fine. Sporadic (but lucrative) income pattern that lets you pay off big chunks a couple of times a year (but maybe not make monthly payments)? Also OK. But "the only way I can possibly afford this house is a mortgage where my payments spike up to even more unaffordable levels in 5-7 years"? Dude, you are a foreclosure just begging to happen.

Sure, it's great that you're seeing a net profit...this year. But maybe all that means is that you got out quick enough.

Somebody please post about how the theory of evolution is what's causing us to lose in Iraq, okay?

The market here is still very high, much higher than it was when we bought 5 years ago, and it hasn't started to drop as of yet.

I do suspect at some point the market around here will probably go down some, I honestly don't see the housing going up much more than it currently is for our area.

That said, while housing bubbles take much longer to pop than other kinds of asset price bubbles, and the prices don't drop as far, a 20% decrease is far from unheard of. Also, the flip side is that recovery tends to take quite a while . . . it can take ten years or more to recoup the losses.

HOUSING BUBBLE NEWS....James Joyner comments on the housing bubble in the Washington DC area:Our current house sold for about 87% of what it likely would have sold for one year ago–but 140% of what my wife paid for it a......