Thanks for an interesting analysis.
My father built everything he has on such interest only loans. They are good when you are fairly sure everything is really underpriced in your market, and you want to get into several properties for as little money as possible.
He built a portfolio of many apartments at the time that supported him for years, and are now suppling him with a comfortable retirement.
But they caused my mom to have quite a few sleepless nights.
"But they caused my mom to have quite a few sleepless nights."
He knew the risks, and took a calculated risk himself. It paid off for him, likely because he studied the local market prior to making the decision, and really stayed on his toes to make the numbers work.
I don't think there are too many "average" homebuyers that are as aware of the risks. They're just looking at the low payment. Most will make out OK, but some will get burned; here's to hoping that not too terribly many lose their shirts, which could reverberate throughout the economy.