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Will the Housing Bubble Bust Like the Dot-Com Fiasco? Homeowners' associations Have Mixed Merits. Weekend Project: A New Front Door.

Aired April 16, 2005 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


TONY HARRIS, CNN ANCHOR: OPEN HOUSE is straight ahead.
But first, these stories now in the news.

CNN will be monitoring a news conference at the top of the hour on a missing Florida girl. The search for Sarah Michelle Lunde is resuming in a Florida park this morning. The 13-year-old disappeared almost a week ago. Searchers are looking for beer bottles that may be linked to a sex offender.

Members of the World Bank and International Monetary Fund are meeting in Washington this weekend. On the agenda, how to cushion the global economy from high oil and gas prices. The meetings are being held under tight security. It is expected that protesters will demand the IMF clear the debt of poor countries.

I'm Tony Harris. OPEN HOUSE starts right now.

ANNOUNCER: Today on OPEN HOUSE, the hot housing market has some experts comparing it to the dot-com boom, and bust. Are we dealing with an overhyped market?

Then, homeowners' associations. Are they a bonus, or a burden? We take a look at the rules and how to manage them.

And our weekend project, installing a new front door to change the entire look of your home.

Next, on OPEN HOUSE.

GERRI WILLIS, HOST: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.

From buying and selling, to renovation and design, we show you how to make the most of your biggest investment, your home.

Chances are, you or someone you know has recently made a bundle in real estate. In fact, the federal government says nationwide, housing prices have climbed nearly 50 percent over the past five years alone.

But with double-digit price gains in markets across the country, there is growing concern that this boom can't last forever.

(BEGIN VIDEOTAPE) WILLIS (voice-over): The setting may look peaceful, the selling was anything but. Some real estate is moving so fast, it's reminiscent of the day-trading frenzy of the late 1990s.

Take this place on Long Island, New York.

JERRY CANINO, FIRST CLASS EQUITIES: This house was purchased for $575,000, and I sold it in three days to a lovely couple for $849,000. Of course, included in that price was the work that we had agreed upon that would be done.

WILLIS: This home in West Palm Beach, Florida, needed no work. It sold just eight hours after being listed.

And in nearby Boynton Beach, buyers were so desperate to get in on this project, some actually paid homeless people to hold their place in line all night so they could snap up condos the instant they hit the market.

CANINO: I've seen hype, I've seen it, but I've seen a lot of people make a lot of money.

WILLIS: Even rising interest rates are doing little to slow things down.

UNIDENTIFIED MALE: The job market is firming a bit, and the economy is continuing to grow. So people's confidence and their willingness to make a commitment the size of a mortgage is reasonably high.

WILLIS: And all this raises the big question, how long can it last?

UNIDENTIFIED MALE: Longer term, I guarantee you, there will be a downturn in home prices, because it is cyclical. Is there a downturn imminent? And there, there's a lot of objective evidence that would point to the answer no.

(END VIDEOTAPE)

WILLIS: So, when might a downturn begin?

We're joined now by the man who predicted the dot-com bust, Robert Shiller. He's professor of economics at Yale University and author of the upcoming book, "Irrational Exuberance, Second Edition."

Also joining us, David Lereah, chief economist with the National Association of Realtors, and author of "Are You Missing the Real Estate Boom?"

Welcome to both of you.

ROBERT SHILLER, Yale University: Thank you.

DAVID LEREAH, NATIONAL ASSOCIATION OF REALTORS: Thank you. WILLIS: Bob, let's start with you. You know, every day it seems like we're hearing another story about how the market's completely out of control. You saw a bunch just a second ago. Is this market cruisin' for a bruisin'?

SHILLER: I think it's definitely a bubble in many cities. The question, of course, that you alluded to, is, when will it be over? The momentum has been very strong. I imagine that's what motivated David Lereah to write this book. It has been easy to make money in the market.

The real question is, how much longer? I don't know. I think that you might have a year or two or even more to go, but there's also signs of a change in attitude. This could be late. This could be too late.

WILLIS: Well, David Lereah, let's turn to you now. Is this a bubble that's just waiting to burst? What's going on here?

LEREAH: Well, I think the better way to look at it is, there's -- you know, real estate is local, so there's local balloons in some of these markets. So I do agree with Bob on that. There are local balloons out here. Double-digit price appreciation for several years in a row is not a healthy situation.

But what I say in my book, and what I've been saying for the last four years, is that the air will come out of the balloon in a manageable way, rather than these balloons popping.

Real estate is not cyclical when it comes to home price appreciation. We have never, with the exception of the Great Depression, we haven't seen nationally home prices drop.

WILLIS: OK.

LEREAH: Locally, you can have a few booms here, a bust here and there.

WILLIS: Well, David, let's turn for a second to Bob Shiller. OK, so David Lereah says, you know, maybe a little air coming out of the balloon a little bit at a time. Do you agree with that, or could there be some real pain here? What is at risk?

SHILLER: I think there's some real pain that's likely to be coming. In fact, I just collected data on U.S. home prices back to 1890. And there have been periods when home prices have declined, extended periods in the first half of this century, when they declined relative to inflation.

WILLIS: What was behind it?

SHILLER: I think it was progress in the construction industry, and supply. We're, we make, you, back then, in 1900, these homes were handmade. Now we've got all kinds of new equipment. We do it better.

WILLIS: Well, professor, though, times have changed. I mean, the market works completely differently. If you see bubbles on the horizon, what is the risk now, and how would it be different?

SHILLER: Yes, human nature has not changed. And what's happening right now in many cities is, people are willing to pay higher and higher prices because they bet the prices are going to keep going up. And darn it, they've been right. They've been making money.

The question is, when will it end? And it will end when the psychology changes. And it may be happening now. This show is one example. There's a lot of talk, now that interest rates have gone up, but I'm not sure. I honestly don't know.

WILLIS: Well, you bring up rising interest rates, and that's where I was going to go next. This is actually something the two of you agree on, rates are headed higher. We're not clear, obviously, how much higher. But what could this do to the market? What's at stake here? Could this make the bubble go away, could it add fuel to the fire?

David, let's start with you.

LEREAH: Well, I think rising interest rates right now, if it's rising in a manageable way, is actually good for the housing markets. To me, it's medicine that we need, because we need to get supply and demand in better balance. And right now, they're not in good balance. It's very awkward. That's why you have such increases and upward pressure on prices.

So we are looking for rates to go up. I am projecting home sales to come down by 4 percent this year. I'm looking and projecting home prices, which were 9.3 percent for the nation as a whole last year, down to 5.3 percent this year. So I am looking for air to come out of the balloon.

WILLIS: OK, well, you know, David Lereah, you've been predicting that home sales would go down for a number of years. It just hasn't happened.

Let me turn to you, Bob Shiller. Is it rising interest rates that could actually make this boom turn into a bust?

SHILLER: The interest rates going up might have an exaggerated influence this time because adjustable rate mortgages have become more important, especially in the boom areas.

But I think actually the biggest impact of interest rates is not their direct impact, it's the impact on talk and the psychology of the bubble. The increase in interest rates over the last month or so has brought out a lot of talk, a lot of end-of-bubble talk, and that has its own momentum.

And that's why I'm worried that this could be close to the end.

WILLIS: Very interesting.

LEREAH: Gerri, can I make a point on the talk part? WILLIS: Jump in there, David. Go right ahead.

LEREAH: OK, thank you. He's trying to compare apples to oranges, because he did a very good job with the stock market several years ago with his "Irrational Exuberance." Psychology plays a very, very big part in stocks. But in real estate, this is something you can feel, you can touch. It's something you live in. So if a house...

WILLIS: Well, that's a good point, David. I mean, you know...

LEREAH: If the house down the street is up for $50,000, but sells for $450,000, does that mean that the next-door neighbor's going to sell their house the next day because they're nervous?

WILLIS: And of course...

LEREAH: No.

WILLIS: ... (UNINTELLIGIBLE)...

LEREAH: That's not what real estate markets do.

WILLIS: ... don't sell like stocks. I'm going to have to wrap it up here really quickly.

But Robert Shiller, do you have anything you want to add, quickly?

SHILLER: Home prices fell after the 1990 peak nationwide, and especially in the boom areas. And I think it might even do it more this time, because it's a bigger bubble.

WILLIS: Well, I appreciate both of you being here. Thanks to Robert Shiller and David Lereah.

Coming up on OPEN HOUSE, homeowners' associations ensure beautiful neighborhoods, but they come with tough rules. We'll take a look.

And our weekend project, give your house a facelift with a new front door.

But first, our tip of the day.

ANNOUNCER: Now that you know how much house you can afford, why not get prequalified and preapproved for a mortgage loan? It will give you negotiating leverage with sellers.

And when you're ready to buy, you'll save time by being two steps ahead in the closing process. With prequalification, you provide the lender with details about your finances, and the lender estimates how much mortgage you can afford.

Preapproval goes one step further. The lender will verify your financial history and issue a letter stating approval for a certain mortgage amount with a certain time frame.

Gain a buying edge by getting prequalified and preapproved.

That's your tip of the day.

(COMMERCIAL BREAK)

WILLIS: Welcome back to OPEN HOUSE.

About 55 million Americans live in communities regulated by homeowners' associations. From suburbs to cities, you find them everywhere. There are definite benefits.

But as one family in White Plains, New York, found, there are downsides as well.

Chris Huntington takes a look.

(BEGIN VIDEOTAPE)

CHRIS HUNTINGTON, CNN CORRESPONDENT (voice-over): What started as a minor dispute is now a full-blown legal battle. Al Renauto is suing his homeowners' association. It all started three years ago, when Renauto decided to put in these wrought-iron railings along the front steps of his house.

AL RENAUTO, HOMEOWNER: Because our son was probably about 2, and he was now walking. And the steps are kind of high, and you can fall off either side, or down the front stops.

HUNTINGTON: Renauto says that before installing the railings, the managing agent told him that no board approval was necessary. But when the railings went in...

RENAUTO: The written response was that the railings were not approved, and their immediate removal was required.

HUNTINGTON: And the fines started racking up, at a rate of $100 a month. Renauto only paid the first $500.

RENAUTO: I mean, there's three homes in the complex with railings. You know, one preexisting black wrought-iron, two, mine, continually denied, black wrought-iron. Three, green wrought iron, approved. I mean, you tell me. I mean, what am I missing here?

HUNTINGTON: Renauto's homeowners' association refused to talk with CNN, but the Community Associations Institute says these groups simply try to set a standard.

TOM SKIBA, CEO, COMMUNITY ASSOCIATIONS INSTITUTE: Rules in communities are there for two purposes, first, to preserve the nature of the community, and second, to protect and enhance property values. And those rules are -- serve the community as a whole, and are part of the contractual relationship between the homeowner and the community association.

HUNTINGTON: Al Renauto agrees, to an extent.

RENAUTO: They serve important roles in communities like this. But like anything else, those decisions need to be overseen. And, you know, every once in a while, mistakes happen. And every once in a while, decisions are made irrationally. And when that happens, you know, as a homeowner, you shouldn't be forced to stand down.

HUNTINGTON: Chris Huntington, CNN, New York.

(END VIDEOTAPE)

WILLIS: OK, those kinds of problems are not uncommon, but it is possible to manage homeowners' association rules successfully.

The author of "Privateopia: Homeowner Associations and the Rise of Residential Private Government," Evan McKenzie, he's joining us from Chicago.

Evan, welcome.

EVAN MCKENZIE, AUTHOR, "PRIVATEOPIA": Well, thank you very much.

WILLIS: All right, I think we've seen the downsides here of these homeowner associations. But you say there are some good things as well. What are we missing?

MCKENZIE: Well, I think that in many ways, homeowner association-type housing helps to keep housing a bit more affordable. You can get more people on less land. There are some amenities that people often like, swimming pools, private streets, extra security, things of this sort. And those things become more affordable for middle-class people in housing that is more dense and governed by community associations.

So there are some positives for the people who are comfortable with that sort of lifestyle.

WILLIS: Right. And they also get property maintenance. You said they get the pools, they get lots of extras that otherwise they might not be able to afford on their own.

MCKENZIE: Yes, and many people like the fact that they have a neighborhood intermediary. They can go to their homeowner association for issues pertaining to property maintenance or conflicts with neighbors, and they don't have to confront them directly.

And many people find the presence of an association a good thing, if they're comfortable with that sort of lifestyle.

WILLIS: Evan McKenzie, though, I have to tell you, we get so much e-mail from people who are having a problem with their homeowners' association, they're unhappy for whatever reason. Why do people have so many problems with these things?

MCKENZIE: Because the associations are run by untrained, unpaid, amateur volunteers from among the residents. The governments of the states and municipalities don't take any responsibility for making sure that these folks know how to do their jobs. And then in many cases, they don't apply the rules correctly, they don't know the limits of the association's power under state law, and they do things they're not supposed to do.

And the other problem is that there's nowhere for the owner to turn if the association makes a mistake. Their only recourse, usually, is to file a lawsuit, which is very expensive, which most people simply cannot afford to do. And in many cases, they can't even find a lawyer who understands this area of law and will, in fact, represent owners.

WILLIS: Well, let's talk a little bit about what you can do if you are in an association now. Or let's say you're simply in a situation where you want to buy into one of these neighborhoods, and you really want to check out what the rules are. How do you figure out what you're on the hook for or what you might not be allowed to do?

MCKENZIE: Well, first, you have to review the governing documents of the association before you purchase. It's very important to do that. Hardly anybody really does it. They get the documents at the closing, at the settlement, and then they don't read them.

Ask your attorney, if you have a lawyer representing you, or whoever's representing you, get the documents in advance, read them, preferably have them explained to you by an attorney. Make sure that your lifestyle, the things you want to do, are permissible, and that you're comfortable with the standards of property maintenance in the association.

WILLIS: What can you recommend to people if they feel like they're up against the homeowners' association with an issue that, you know, they don't want to bend on, the association doesn't want to bend on? Where do you go?

MCKENZIE: Well, step one is, don't ignore the initial demand of your association. Don't just blow it off and say, Well, this is just my neighbors beefing at me. This is a very serious thing. It can lead to a lien on your house and the sale of your home and foreclosure.

WILLIS: Wow, I...

MCKENZIE: So it's very, very...

WILLIS: ... let's just stop right there, the risks here are pretty substantial. You could lose your house.

MCKENZIE: Yes. You can lose your house, yes, because the association is allowed to place a lien on your home for unpaid assessments, and in some cases for fines. And so, and they can foreclose on these liens. In some states, they can do it without even going to court. They can have a what's called nonjudicial foreclosure. They can foreclose in a trustee sale that won't even involve a judge. WILLIS: OK. But how do I fight them?

MCKENZIE: And so you need to -- Well, you -- I think many people first will seek legal counsel. Understand that if you fight your association, you have to be in it for the long haul. They often -- they're suing you with your money. They're paying their lawyer with your money. There's, they're assessing all the owners to pay their counsel.

But if you choose this course, you may want to seek out other people in similar situations. Sometimes other people in your association have the same problem. You may want to organize within your association.

Secondly, you may go outside the association, use some of the resources available on the Internet. There are many owners groups that have share -- they share a lot of information. And some of this information can be very, very helpful to you and your attorney in terms of your rights under state law.

Many people don't know that they have rights under their declaration and under state laws that may protect them. It may be the association's actions simply are improper. And if so, you may have a valid legal defense.

WILLIS: Well, Evan McKenzie, great advice, great insights. Thanks so much for being with us.

MCKENZIE: It's been my pleasure. Thank you very much.

WILLIS: Coming up, the weekend project. Install a new front door and transform the look of your home. Make it your weekend project.

That's next.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

WILLIS: Welcome back to OPEN HOUSE and weekend project.

We're in Moorestown, New Jersey, at the home of Katherine Carson (ph), where we're replacing her front door.

Katherine, why did you decide to do that?

KATHERINE CARSON, HOMEOWNER: I bought the house three years ago and replaced the siding and the windows and the roof. And the new front door is just the final piece to make it look really pretty.

WILLIS (voice-over): First, make sure your new front door is prehung. This means the door is hinged already and installed into its frame. So all you have to do is install the door into the rough opening.

Next, remove the old door by tapping out the hinge pins and pulling the door off the hinges.

WILLIS (on camera): OK, so we got the door out. What happens next?

H. CRAIG LOHO, CONTRACTOR: Good job getting that door out. Now we want to try and get this -- the door trim off without damaging the walls around the door.

WILLIS: OK, what kind of tool do you use for that?

LOHO: Well, I'm going to start out with a utility knife. And want you to go around the trim here and carefully cut the caulk (UNINTELLIGIBLE). We want to come in from the door side of the trim. If we pried it off from this side, we'd run the risk of damaging the wall. So we want to come in from the door side of the trim.

Katherine, why don't you just take your hammer, tap that in, and work that trim right off.

WILLIS (voice-over): Once the old door is out and the trim is removed, you need to make sure the door will fit property.

(on camera): All right, so you're going to hang the door. What's the -- tell me the first step in doing that.

LOHO: Well, what we want to look at this opening here, and we see that the tarpaper is old, has holes in it. It's brittle. So I'm going have Katherine probably put new tarpaper around the opening.

WILLIS: What's the tarpaper for?

LOHO: It's a weatherstripping. It just keeps the moisture from penetrating into the building, protects the house.

Third thing we have to do is, we have to check the opening for plumb and level.

WILLIS: Plumb and level, meaning?

LOHO: Meaning the plumb is the vertical, perfect 90 degrees, and level is the horizontal.

WILLIS (voice-over): If the frame is not perfectly plumb or level, the door won't open or close correctly. So tighten or loosen shims as necessary until the angles you need are made.

Before final installation, test the door to be sure it fits.

Finally, set the bottom of the door in place, and raise the top into position and secure hinges. Adjust the frame by adding shims and nailing every 16 inches or so. Drive all nails close to the surface.

(on camera): I'm loving your door. It looks great.

CARSON: Thank you so much. I think it looks terrific too.

WILLIS: You're happy with it.

CARSON: I'm very happy. Took two days to do the whole project.

WILLIS: So that's great. Coming in under two days, just a little bit more to do, aluminum wrapping around the edge here.

Do you want a doorbell?

CARSON: I want a doorbell, Gerri.

WILLIS: OK. But then it'll be perfect.

CARSON: It will be perfect.

WILLIS: Thanks so much.

CARSON: Thank you.

(END VIDEO CLIP)

WILLIS: If you want to keep your current door, paint or stain can spruce it up and prolong the door's life.

Coming up, a look at next week's show.

But first, your mortgage snapshot.

(COMMERCIAL BREAK)

WILLIS: Next week on OPEN HOUSE, getting in on real estate investing with real estate partnerships. How they work, and who they're good for.

Prefab perfection. We'll look at some beautiful modular homes on the market.

And our weekend project, pest control. We'll combat everything from mice to mosquitoes.

Also, we want to hear from you. Send us your comments, your questions to openhouse@cnn.com.

Thanks for watching OPEN HOUSE." We'll see you here next Saturday.

Coming up, "DOLANS UNSCRIPTED," after the day's headlines.

Have a great weekend.

HARRIS: Morning, everyone, I'm Tony Harris in Atlanta. "DOLANS UNSCRIPTED" is straight ahead.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com


Aired April 16, 2005 - 09:30   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN ANCHOR: OPEN HOUSE is straight ahead.
But first, these stories now in the news.

CNN will be monitoring a news conference at the top of the hour on a missing Florida girl. The search for Sarah Michelle Lunde is resuming in a Florida park this morning. The 13-year-old disappeared almost a week ago. Searchers are looking for beer bottles that may be linked to a sex offender.

Members of the World Bank and International Monetary Fund are meeting in Washington this weekend. On the agenda, how to cushion the global economy from high oil and gas prices. The meetings are being held under tight security. It is expected that protesters will demand the IMF clear the debt of poor countries.

I'm Tony Harris. OPEN HOUSE starts right now.

ANNOUNCER: Today on OPEN HOUSE, the hot housing market has some experts comparing it to the dot-com boom, and bust. Are we dealing with an overhyped market?

Then, homeowners' associations. Are they a bonus, or a burden? We take a look at the rules and how to manage them.

And our weekend project, installing a new front door to change the entire look of your home.

Next, on OPEN HOUSE.

GERRI WILLIS, HOST: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.

From buying and selling, to renovation and design, we show you how to make the most of your biggest investment, your home.

Chances are, you or someone you know has recently made a bundle in real estate. In fact, the federal government says nationwide, housing prices have climbed nearly 50 percent over the past five years alone.

But with double-digit price gains in markets across the country, there is growing concern that this boom can't last forever.

(BEGIN VIDEOTAPE) WILLIS (voice-over): The setting may look peaceful, the selling was anything but. Some real estate is moving so fast, it's reminiscent of the day-trading frenzy of the late 1990s.

Take this place on Long Island, New York.

JERRY CANINO, FIRST CLASS EQUITIES: This house was purchased for $575,000, and I sold it in three days to a lovely couple for $849,000. Of course, included in that price was the work that we had agreed upon that would be done.

WILLIS: This home in West Palm Beach, Florida, needed no work. It sold just eight hours after being listed.

And in nearby Boynton Beach, buyers were so desperate to get in on this project, some actually paid homeless people to hold their place in line all night so they could snap up condos the instant they hit the market.

CANINO: I've seen hype, I've seen it, but I've seen a lot of people make a lot of money.

WILLIS: Even rising interest rates are doing little to slow things down.

UNIDENTIFIED MALE: The job market is firming a bit, and the economy is continuing to grow. So people's confidence and their willingness to make a commitment the size of a mortgage is reasonably high.

WILLIS: And all this raises the big question, how long can it last?

UNIDENTIFIED MALE: Longer term, I guarantee you, there will be a downturn in home prices, because it is cyclical. Is there a downturn imminent? And there, there's a lot of objective evidence that would point to the answer no.

(END VIDEOTAPE)

WILLIS: So, when might a downturn begin?

We're joined now by the man who predicted the dot-com bust, Robert Shiller. He's professor of economics at Yale University and author of the upcoming book, "Irrational Exuberance, Second Edition."

Also joining us, David Lereah, chief economist with the National Association of Realtors, and author of "Are You Missing the Real Estate Boom?"

Welcome to both of you.

ROBERT SHILLER, Yale University: Thank you.

DAVID LEREAH, NATIONAL ASSOCIATION OF REALTORS: Thank you. WILLIS: Bob, let's start with you. You know, every day it seems like we're hearing another story about how the market's completely out of control. You saw a bunch just a second ago. Is this market cruisin' for a bruisin'?

SHILLER: I think it's definitely a bubble in many cities. The question, of course, that you alluded to, is, when will it be over? The momentum has been very strong. I imagine that's what motivated David Lereah to write this book. It has been easy to make money in the market.

The real question is, how much longer? I don't know. I think that you might have a year or two or even more to go, but there's also signs of a change in attitude. This could be late. This could be too late.

WILLIS: Well, David Lereah, let's turn to you now. Is this a bubble that's just waiting to burst? What's going on here?

LEREAH: Well, I think the better way to look at it is, there's -- you know, real estate is local, so there's local balloons in some of these markets. So I do agree with Bob on that. There are local balloons out here. Double-digit price appreciation for several years in a row is not a healthy situation.

But what I say in my book, and what I've been saying for the last four years, is that the air will come out of the balloon in a manageable way, rather than these balloons popping.

Real estate is not cyclical when it comes to home price appreciation. We have never, with the exception of the Great Depression, we haven't seen nationally home prices drop.

WILLIS: OK.

LEREAH: Locally, you can have a few booms here, a bust here and there.

WILLIS: Well, David, let's turn for a second to Bob Shiller. OK, so David Lereah says, you know, maybe a little air coming out of the balloon a little bit at a time. Do you agree with that, or could there be some real pain here? What is at risk?

SHILLER: I think there's some real pain that's likely to be coming. In fact, I just collected data on U.S. home prices back to 1890. And there have been periods when home prices have declined, extended periods in the first half of this century, when they declined relative to inflation.

WILLIS: What was behind it?

SHILLER: I think it was progress in the construction industry, and supply. We're, we make, you, back then, in 1900, these homes were handmade. Now we've got all kinds of new equipment. We do it better.

WILLIS: Well, professor, though, times have changed. I mean, the market works completely differently. If you see bubbles on the horizon, what is the risk now, and how would it be different?

SHILLER: Yes, human nature has not changed. And what's happening right now in many cities is, people are willing to pay higher and higher prices because they bet the prices are going to keep going up. And darn it, they've been right. They've been making money.

The question is, when will it end? And it will end when the psychology changes. And it may be happening now. This show is one example. There's a lot of talk, now that interest rates have gone up, but I'm not sure. I honestly don't know.

WILLIS: Well, you bring up rising interest rates, and that's where I was going to go next. This is actually something the two of you agree on, rates are headed higher. We're not clear, obviously, how much higher. But what could this do to the market? What's at stake here? Could this make the bubble go away, could it add fuel to the fire?

David, let's start with you.

LEREAH: Well, I think rising interest rates right now, if it's rising in a manageable way, is actually good for the housing markets. To me, it's medicine that we need, because we need to get supply and demand in better balance. And right now, they're not in good balance. It's very awkward. That's why you have such increases and upward pressure on prices.

So we are looking for rates to go up. I am projecting home sales to come down by 4 percent this year. I'm looking and projecting home prices, which were 9.3 percent for the nation as a whole last year, down to 5.3 percent this year. So I am looking for air to come out of the balloon.

WILLIS: OK, well, you know, David Lereah, you've been predicting that home sales would go down for a number of years. It just hasn't happened.

Let me turn to you, Bob Shiller. Is it rising interest rates that could actually make this boom turn into a bust?

SHILLER: The interest rates going up might have an exaggerated influence this time because adjustable rate mortgages have become more important, especially in the boom areas.

But I think actually the biggest impact of interest rates is not their direct impact, it's the impact on talk and the psychology of the bubble. The increase in interest rates over the last month or so has brought out a lot of talk, a lot of end-of-bubble talk, and that has its own momentum.

And that's why I'm worried that this could be close to the end.

WILLIS: Very interesting.

LEREAH: Gerri, can I make a point on the talk part? WILLIS: Jump in there, David. Go right ahead.

LEREAH: OK, thank you. He's trying to compare apples to oranges, because he did a very good job with the stock market several years ago with his "Irrational Exuberance." Psychology plays a very, very big part in stocks. But in real estate, this is something you can feel, you can touch. It's something you live in. So if a house...

WILLIS: Well, that's a good point, David. I mean, you know...

LEREAH: If the house down the street is up for $50,000, but sells for $450,000, does that mean that the next-door neighbor's going to sell their house the next day because they're nervous?

WILLIS: And of course...

LEREAH: No.

WILLIS: ... (UNINTELLIGIBLE)...

LEREAH: That's not what real estate markets do.

WILLIS: ... don't sell like stocks. I'm going to have to wrap it up here really quickly.

But Robert Shiller, do you have anything you want to add, quickly?

SHILLER: Home prices fell after the 1990 peak nationwide, and especially in the boom areas. And I think it might even do it more this time, because it's a bigger bubble.

WILLIS: Well, I appreciate both of you being here. Thanks to Robert Shiller and David Lereah.

Coming up on OPEN HOUSE, homeowners' associations ensure beautiful neighborhoods, but they come with tough rules. We'll take a look.

And our weekend project, give your house a facelift with a new front door.

But first, our tip of the day.

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Preapproval goes one step further. The lender will verify your financial history and issue a letter stating approval for a certain mortgage amount with a certain time frame.

Gain a buying edge by getting prequalified and preapproved.

That's your tip of the day.

(COMMERCIAL BREAK)

WILLIS: Welcome back to OPEN HOUSE.

About 55 million Americans live in communities regulated by homeowners' associations. From suburbs to cities, you find them everywhere. There are definite benefits.

But as one family in White Plains, New York, found, there are downsides as well.

Chris Huntington takes a look.

(BEGIN VIDEOTAPE)

CHRIS HUNTINGTON, CNN CORRESPONDENT (voice-over): What started as a minor dispute is now a full-blown legal battle. Al Renauto is suing his homeowners' association. It all started three years ago, when Renauto decided to put in these wrought-iron railings along the front steps of his house.

AL RENAUTO, HOMEOWNER: Because our son was probably about 2, and he was now walking. And the steps are kind of high, and you can fall off either side, or down the front stops.

HUNTINGTON: Renauto says that before installing the railings, the managing agent told him that no board approval was necessary. But when the railings went in...

RENAUTO: The written response was that the railings were not approved, and their immediate removal was required.

HUNTINGTON: And the fines started racking up, at a rate of $100 a month. Renauto only paid the first $500.

RENAUTO: I mean, there's three homes in the complex with railings. You know, one preexisting black wrought-iron, two, mine, continually denied, black wrought-iron. Three, green wrought iron, approved. I mean, you tell me. I mean, what am I missing here?

HUNTINGTON: Renauto's homeowners' association refused to talk with CNN, but the Community Associations Institute says these groups simply try to set a standard.

TOM SKIBA, CEO, COMMUNITY ASSOCIATIONS INSTITUTE: Rules in communities are there for two purposes, first, to preserve the nature of the community, and second, to protect and enhance property values. And those rules are -- serve the community as a whole, and are part of the contractual relationship between the homeowner and the community association.

HUNTINGTON: Al Renauto agrees, to an extent.

RENAUTO: They serve important roles in communities like this. But like anything else, those decisions need to be overseen. And, you know, every once in a while, mistakes happen. And every once in a while, decisions are made irrationally. And when that happens, you know, as a homeowner, you shouldn't be forced to stand down.

HUNTINGTON: Chris Huntington, CNN, New York.

(END VIDEOTAPE)

WILLIS: OK, those kinds of problems are not uncommon, but it is possible to manage homeowners' association rules successfully.

The author of "Privateopia: Homeowner Associations and the Rise of Residential Private Government," Evan McKenzie, he's joining us from Chicago.

Evan, welcome.

EVAN MCKENZIE, AUTHOR, "PRIVATEOPIA": Well, thank you very much.

WILLIS: All right, I think we've seen the downsides here of these homeowner associations. But you say there are some good things as well. What are we missing?

MCKENZIE: Well, I think that in many ways, homeowner association-type housing helps to keep housing a bit more affordable. You can get more people on less land. There are some amenities that people often like, swimming pools, private streets, extra security, things of this sort. And those things become more affordable for middle-class people in housing that is more dense and governed by community associations.

So there are some positives for the people who are comfortable with that sort of lifestyle.

WILLIS: Right. And they also get property maintenance. You said they get the pools, they get lots of extras that otherwise they might not be able to afford on their own.

MCKENZIE: Yes, and many people like the fact that they have a neighborhood intermediary. They can go to their homeowner association for issues pertaining to property maintenance or conflicts with neighbors, and they don't have to confront them directly.

And many people find the presence of an association a good thing, if they're comfortable with that sort of lifestyle.

WILLIS: Evan McKenzie, though, I have to tell you, we get so much e-mail from people who are having a problem with their homeowners' association, they're unhappy for whatever reason. Why do people have so many problems with these things?

MCKENZIE: Because the associations are run by untrained, unpaid, amateur volunteers from among the residents. The governments of the states and municipalities don't take any responsibility for making sure that these folks know how to do their jobs. And then in many cases, they don't apply the rules correctly, they don't know the limits of the association's power under state law, and they do things they're not supposed to do.

And the other problem is that there's nowhere for the owner to turn if the association makes a mistake. Their only recourse, usually, is to file a lawsuit, which is very expensive, which most people simply cannot afford to do. And in many cases, they can't even find a lawyer who understands this area of law and will, in fact, represent owners.

WILLIS: Well, let's talk a little bit about what you can do if you are in an association now. Or let's say you're simply in a situation where you want to buy into one of these neighborhoods, and you really want to check out what the rules are. How do you figure out what you're on the hook for or what you might not be allowed to do?

MCKENZIE: Well, first, you have to review the governing documents of the association before you purchase. It's very important to do that. Hardly anybody really does it. They get the documents at the closing, at the settlement, and then they don't read them.

Ask your attorney, if you have a lawyer representing you, or whoever's representing you, get the documents in advance, read them, preferably have them explained to you by an attorney. Make sure that your lifestyle, the things you want to do, are permissible, and that you're comfortable with the standards of property maintenance in the association.

WILLIS: What can you recommend to people if they feel like they're up against the homeowners' association with an issue that, you know, they don't want to bend on, the association doesn't want to bend on? Where do you go?

MCKENZIE: Well, step one is, don't ignore the initial demand of your association. Don't just blow it off and say, Well, this is just my neighbors beefing at me. This is a very serious thing. It can lead to a lien on your house and the sale of your home and foreclosure.

WILLIS: Wow, I...

MCKENZIE: So it's very, very...

WILLIS: ... let's just stop right there, the risks here are pretty substantial. You could lose your house.

MCKENZIE: Yes. You can lose your house, yes, because the association is allowed to place a lien on your home for unpaid assessments, and in some cases for fines. And so, and they can foreclose on these liens. In some states, they can do it without even going to court. They can have a what's called nonjudicial foreclosure. They can foreclose in a trustee sale that won't even involve a judge. WILLIS: OK. But how do I fight them?

MCKENZIE: And so you need to -- Well, you -- I think many people first will seek legal counsel. Understand that if you fight your association, you have to be in it for the long haul. They often -- they're suing you with your money. They're paying their lawyer with your money. There's, they're assessing all the owners to pay their counsel.

But if you choose this course, you may want to seek out other people in similar situations. Sometimes other people in your association have the same problem. You may want to organize within your association.

Secondly, you may go outside the association, use some of the resources available on the Internet. There are many owners groups that have share -- they share a lot of information. And some of this information can be very, very helpful to you and your attorney in terms of your rights under state law.

Many people don't know that they have rights under their declaration and under state laws that may protect them. It may be the association's actions simply are improper. And if so, you may have a valid legal defense.

WILLIS: Well, Evan McKenzie, great advice, great insights. Thanks so much for being with us.

MCKENZIE: It's been my pleasure. Thank you very much.

WILLIS: Coming up, the weekend project. Install a new front door and transform the look of your home. Make it your weekend project.

That's next.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

WILLIS: Welcome back to OPEN HOUSE and weekend project.

We're in Moorestown, New Jersey, at the home of Katherine Carson (ph), where we're replacing her front door.

Katherine, why did you decide to do that?

KATHERINE CARSON, HOMEOWNER: I bought the house three years ago and replaced the siding and the windows and the roof. And the new front door is just the final piece to make it look really pretty.

WILLIS (voice-over): First, make sure your new front door is prehung. This means the door is hinged already and installed into its frame. So all you have to do is install the door into the rough opening.

Next, remove the old door by tapping out the hinge pins and pulling the door off the hinges.

WILLIS (on camera): OK, so we got the door out. What happens next?

H. CRAIG LOHO, CONTRACTOR: Good job getting that door out. Now we want to try and get this -- the door trim off without damaging the walls around the door.

WILLIS: OK, what kind of tool do you use for that?

LOHO: Well, I'm going to start out with a utility knife. And want you to go around the trim here and carefully cut the caulk (UNINTELLIGIBLE). We want to come in from the door side of the trim. If we pried it off from this side, we'd run the risk of damaging the wall. So we want to come in from the door side of the trim.

Katherine, why don't you just take your hammer, tap that in, and work that trim right off.

WILLIS (voice-over): Once the old door is out and the trim is removed, you need to make sure the door will fit property.

(on camera): All right, so you're going to hang the door. What's the -- tell me the first step in doing that.

LOHO: Well, what we want to look at this opening here, and we see that the tarpaper is old, has holes in it. It's brittle. So I'm going have Katherine probably put new tarpaper around the opening.

WILLIS: What's the tarpaper for?

LOHO: It's a weatherstripping. It just keeps the moisture from penetrating into the building, protects the house.

Third thing we have to do is, we have to check the opening for plumb and level.

WILLIS: Plumb and level, meaning?

LOHO: Meaning the plumb is the vertical, perfect 90 degrees, and level is the horizontal.

WILLIS (voice-over): If the frame is not perfectly plumb or level, the door won't open or close correctly. So tighten or loosen shims as necessary until the angles you need are made.

Before final installation, test the door to be sure it fits.

Finally, set the bottom of the door in place, and raise the top into position and secure hinges. Adjust the frame by adding shims and nailing every 16 inches or so. Drive all nails close to the surface.

(on camera): I'm loving your door. It looks great.

CARSON: Thank you so much. I think it looks terrific too.

WILLIS: You're happy with it.

CARSON: I'm very happy. Took two days to do the whole project.

WILLIS: So that's great. Coming in under two days, just a little bit more to do, aluminum wrapping around the edge here.

Do you want a doorbell?

CARSON: I want a doorbell, Gerri.

WILLIS: OK. But then it'll be perfect.

CARSON: It will be perfect.

WILLIS: Thanks so much.

CARSON: Thank you.

(END VIDEO CLIP)

WILLIS: If you want to keep your current door, paint or stain can spruce it up and prolong the door's life.

Coming up, a look at next week's show.

But first, your mortgage snapshot.

(COMMERCIAL BREAK)

WILLIS: Next week on OPEN HOUSE, getting in on real estate investing with real estate partnerships. How they work, and who they're good for.

Prefab perfection. We'll look at some beautiful modular homes on the market.

And our weekend project, pest control. We'll combat everything from mice to mosquitoes.

Also, we want to hear from you. Send us your comments, your questions to openhouse@cnn.com.

Thanks for watching OPEN HOUSE." We'll see you here next Saturday.

Coming up, "DOLANS UNSCRIPTED," after the day's headlines.

Have a great weekend.

HARRIS: Morning, everyone, I'm Tony Harris in Atlanta. "DOLANS UNSCRIPTED" is straight ahead.

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