I didn't even hear of ARMS until the 1980's and they were still rare at that time.
I won't roll through my entire story, but if when I purchase my home in 1999 I had gone with a fixed rate mortgage I would have payed far more each month for the next 6 years in many many many thousands of dollars. I bought it with a 1 year ARM. It dropped every year. I refinanced in 2003 at what was arguably "the bottom" (3/1 ARM at 3%!!!) because I knew I would be out of that home and in a new one in less than 3 years. And I was. Am in a new home now. Bought with a fixed.
Different times, situations, scenarios, and plans call for different loan terms.
But an ARM was the best option for me and I save THOUSANDS of dollars by doing it.
I'm in a 5 year ARM now, and have been for 3.5 years. I'll be moving within the next three months, and knew when I bought the home that it was my timeline. Instead of financing at 6.125%, I have a rate of 5.675%. I saved quite a few dollars as a result.
The key is to understand your plans and the terms of the mortgage, and finance accordingly.
I also prefer fixed rate loans, but there is a time and place for adjustables. At a minimum, a prudent borrower would set aside the savings on a variable rate loan and use the money, if necessary, to subsidize increasing interest costs.
I think a lot of the problem is that borrowers refinanced at low variable rates and took cash out to pay credit card debt and use for other necessities (boats, cars, vacations, etc.). It is not just a rate problem, it is an increased loan amount problem.
Again, it depends on the scenario. If you're pretty damn sure you'll sell in 5 years, then a 5 year ARM (fixed for 5 then variable) is a more sensible way to go. It's all in risk tolerance. Most non-Option ARMS done in 2003 and 2004 have life caps that keep the absolute highest rate at 9% or so, with a start rate of 3% fixed 5 years - perfectly attainable in 2003.