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Tour of Future Homes; Low-cost Kitchens; Creative Home Loans

Aired August 13, 2005 - 09:30   ET


GERRI WILLIS, HOST: Imagine this, great kitchen, beautiful design, low price. Plus, the home expands. We'll tour the home of the future.
ANNOUNCER: Today on OPEN HOUSE, America's home, "Better Homes and Gardens" came up with the house that's said to have everything. We'll take a look.

Then, is the bloom off the boom? Signs that the housing market is cooling off. We'll look at areas most at risk.

And, unique mortgages for unique situations. We'll explore some creative home loans. Is one right for you? Ahead on OPEN HOUSE.

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

What makes the perfect home? Well, a team of architects, builders, and designers think they have the answer. And they built it just outside Atlanta. Let's take a look.


WILLIS: What do homeowners want? Well, in an effort to find out, "Better Homes and Gardens" polled their readers, all 6.7 million of them. They took their suggestions and put them all in this house.

(voice-over): Just outside Atlanta, this family home was built to be affordable, flexible, and environmentally friendly.

TONY LONG, ARCHITECT: I think we looked at affordability from a couple of different standpoints. First off, we tried to keep the square footage of the house below 3,000 square feet, sort of a threshold for affordability as we were defining it amongst the team members.

WILLIS (on camera): So we don't have a monster house here.

LONG: This is not a monster house. Yes, I think it's scaled well, fits into the community, but also gives us a lot of program, lot of functionality.

WILLIS: Now, you said you also used some building construction materials that help you keep costs down. Tell me about that.

LONG: Sure. We used a technology called a structural insulated panel, which is a S-I-P, SIPs.



LONG: Structural insulated panels, the framing system that we used for this building is a high-performance prefabricated system that allowed the building to go up very quickly.

WILLIS: So you saved money on time, on man-hours.

LONG: Absolutely.

WILLIS: Is, does it also, it makes it easier to put together. What are the other benefits?

LONG: Well, it's a very high-performance insulating material. And it gives us a lower cost of ownership. It's much...

WILLIS: Energy costs are down.

LONG: Absolutely.

WILLIS: Cheaper to heat and cool.

LONG: Much cheaper.

WILLIS: Well, let's go inside and take a look.

LONG: Great.

WILLIS (voice-over): Being affordable doesn't mean that this home can't fit a growing family.

PAM SESSIONS, HOME BUILDER: There's flexibility in how the house could actually grow. We have a flat-roof garage that is one story, and the main mass of the house is two story.

WILLIS (INAUDIBLE): Where would that be?

SESSIONS: Right over here. So you could actually build a whole 'nother room over this garage. That could be a bedroom and bath. That could be a large playroom, rec. room.

WILLIS: So you wouldn't have to have more square footage on the ground, hence your taxes don't go up, which is important thing.

Speaking of flexibility, let's go look at this kitchen.


WILLIS: Now, this is the ultimate flexible kitchen.


WILLIS: I love this space. It's very open. Tell me about your ideas in putting this together. SESSIONS: Well, this is the center of everyone's life, the kitchen. Big work surface. Open to both living areas. You know, it just gently screened with this glass. You can still definitely participate in what's going on. But it's nice when you come in the front door to have that little screen to the cooking and to the kitchen sink.

WILLIS (voice-over): With the kitchen at the center of the home, its design had to be functional, livable, and affordable.

(on camera): This is a fabulous kitchen. But even in this room, which is real think heartbeat of the house, you tried to be mindful of costs. How did you keep costs down?

SESSIONS: Well, one of the things that we did was to use stock cabinetry, and we tried to make it a little more interesting by introducing glass and some open cabinets. And we actually introduced some stainless shelves over there by the cooktop area.

WILLIS: You've got a great kitchen island here. Is there anything special you did here for this house specifically?

SESSIONS: Well, one of the things I -- to me, in an island, is that you want to make sure it doesn't become an impediment in the room, that as you go from the refrigerator to take food out, and then you prep it here in the prep sink, and we have a cutting board that you can remove for cleaning and...

WILLIS: I love the...

SESSIONS: ... actually slide it out, and you have a little trash drop right under it, so you can...

WILLIS: Awesome.

SESSIONS: ... you can do this with it if you want.

WILLIS: God, that is fabulous.

(voice-over): This house may not look revolutionary, but smart- design features can create a place that is easy to live in, and grows with your family.


WILLIS: The desire for better houses is one thing that's helped fuel the housing boom. But there may be signs of weakness cropping up. Joining us now from Washington for a closer look at which markets are most vulnerable is David Lereah. He's chief economist with the National Association of Realtors. And in Watertown, Massachusetts, David Stiff, senior economist at FISERV CSW.

Welcome to both of you.


WILLIS: Good to see you.

I want to start with David Lereah. You're well known as a bull in the industry, and you've even written a book called, "Are You Missing the Real Estate Boom?" But now you're saying that some areas could be vulnerable to a decline. Why the change of heart?

LEREAH: Well, it's not a change of heart. It's just the evolution of the markets right now. Most markets are still relatively healthy. The fundamentals are still in place. But there are some markets now where they're getting a little more fragile. Some of it has to do with speculative investing in those markets, which I never anticipated several years ago would happen.

WILLIS: Right.

LEREAH: And then the other piece is the interest-only loans.

WILLIS: Well, so, I want you to name those markets, David. Where do you see real weakness?

LEREAH: Well, I'm not saying it's weak, I'm saying that it's vulnerable. And I would say, if you go to California right now, San Diego is a good example. You do have some vulnerability there. You do have a lot of ARMs, adjustable rate mortgages, interest rate onlys. But at the same time, affordability is coming into question. I think we're going to see some prices begin to slow down in that area of the country.

WILLIS: All right. Let's turn to David Stiff now. We got a copy of your forecast. And your outlook is for declines in almost 60 markets. Tell us why your outlook is so different from David Lereah's.

STIFF: I think we see vulnerability in California, also in Vegas, Florida, and some of the Northeast markets. And mainly it's because affordability is being stretched so much in these markets. I mean, we've seen terrific run-ups in some of these places, 50 percent last year in Las Vegas. And that's really making it impossible for most households to afford houses in these markets.

WILLIS: I want to say quickly, the list you're looking at right now, is not a one-year outlook. This is a multi-year outlook. This is from the peak to the bottom, basically, is what you're looking at here. So I don't want people to get upset out there looking at this graphic.

David, you mentioned a number of the markets that you're naming that could decline. But there are also some that I would never have expected, like Hartford, Connecticut. It seems that the problem is maybe more thoroughgoing than most people think, in your view. Tell us more about your outlook.

STIFF: Well, to put it in perspective, if we compare this to what happened in the late '80s and the late '90s, the number of markets where we expect downturns this time is much fewer number of markets. So about 55 markets. Last time, two-thirds of the markets experienced price declines. And again, it can really be tied to two sources.

One, there's certain markets where there's been a great deal of speculation. And when demand drives up from the speculators, those markets are going to experience price declines. So those are places like Las Vegas and a lot of the California markets.

In other markets, prices have risen so high that most households are priced out of the market. And so as interest rates rise, we'll see prices fall, because demand will dry up.

WILLIS: I want to turn to David Lereah quickly here. What can homeowners do? If you're in a situation where you may have bought close to the peak, do you just sit and wait this out? Or what do you do?

LEREAH: Well, you know, first, I would say that a lot of the analysis that I've heard just now about all these markets that are going to contract over the next couple of years is nonsensical, just doesn't make much sense to me. So I would...

WILLIS: Why is that?

LEREAH: Well, you know, it takes a perfect storm for a local market to have price softening, where prices actually turn down, not up. You need to have some serious job losses in a local marketplace, or you need to have interest rates go up 2, 3, 4 percentage points. That's not going to happen. Or let's just assume, if that doesn't happen, how do you get all these markets where the balloon bursts rather than air coming out of the balloon?

I would suggest that most of these markets, and to your viewers right now, air will come out of most of these balloons, which means rather than...

WILLIS: Right.

LEREAH: ... 50 percent appreciation in Vegas, you'll now have 15...

WILLIS: David, I want...

LEREAH: ... percent.

WILLIS: ... I want to get you to one quick question here, though. What do homeowners do if they're in a market that is facing declines?

LEREAH: Well, if you're facing declines, it really depends on your own situation. If you're going to live in that house for a number of years, because you've got children going to school, you don't have a problem, because prices always come back in real estate. Real estate is an appreciating asset... WILLIS: All right. David Lereah, David Stiff, thank you so much for helping us out today.

LEREAH: Thank you very much.

STIFF: Thank you.

WILLIS: Coming up on OPEN HOUSE, from paying interest-only to technically no interest at all, we'll look at mortgages designed for every solution.

And later, get it right on the outside. We have suggestions for redesigning your home's exterior at minimal cost and effort.

But first, your tip of the day.


ANNOUNCER: Every homeowner should be prepared with a basic toolbox for quick, easy home repairs.

A simple kit can be put together for less than $30. It should include five essential items, a hammer and screwdriver, crucial for many fixes, a knife for delicate cutting, a hacksaw for bigger cuts, and a roll of measuring tape to ensure your fixes are precise.

And be sure to keep your box in an easy-to-access location.

That's your tip of the day.


WILLIS: It used to be, the 30-year fixed-rate mortgage was the only game in town. But not any more. There are plenty of creative financing options to help you buy your dream home.

One example is the interest-only mortgage. But as Allan Chernoff shows us, it's not for everyone.


ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): A living room and a wet bar. It's a dream home in Manhattan for Charles Carter and his wife, Carolyn, who lived in a tiny studio for nine years. But the cost, $460,000, plus another $150,000 in renovations for a three- bedroom apartment, was intimidating.

But the Carters took out what their bank would describe as an interest-only mortgage.

CHARLES CARTER: We didn't know much about it going into the process, actually, and we looked at it and we thought, compared to a conventional loan, that there is certainly more flexibility as well as more buying power.

CHERNOFF: Lenders call them interest-only loans, but that's a misnomer. The borrower is required to make only interest payments in the early years of the mortgage. Later on, though, the borrower still has to pay back the principal. At that point, monthly payments can soar.

ALLEN FISHBEIN, CONSUMER FEDERATION OF AMERICA: Many first-time homebuyers are unaware of the risks involved, and the fact that payments could increase by 30 percent or more after the initial interest-only period has expired.

CHERNOFF: The Carters didn't want to in crease their risk, only reduce it. So they're making optional payments on the principal of the loan every month.

CARTER: But we know that we have the flexibility on, let's say, any given month or any given year, for us to stop paying, you know, principal if we wanted to.

CHERNOFF: By making those payments, the Carters are building ownership in their new home. Homebuyers who pay only interest to the bank are essentially renting from their lender.

So-called interest-only loans can be helpful for people who can't predict their incomes, says mortgage lender Bob Moulton.

BOB MOULTON, AMERICANA MORTGAGE GROUP: An interest-only mortgage is good for someone who receives a bonus at the end of the year, or who is commission-driven, and comes into uneven cash flows. An interest-only mortgage will lower your payment approximately 25 percent versus a fixed-rate mortgage.

CHERNOFF: The Carters will have to remain disciplined, paying down principal, to take full advantage of their loan. But for most people who want to build equity in their homes, so-called interest- only mortgages can be a risky proposition.

Allan Chernoff, CNN, New York.


WILLIS: Would you be able to live a debt-free existence? For the nation's more than 3 million Muslim households, living debt-free is a religious duty. That means interest payments on a traditional mortgage are out of the question. So how do Islamic homeowners make ends meet?

Kimberly Osias reports on a solution that some mortgage companies have come up with.


KIMBERLY OSIAS, CNN CORRESPONDENT (voice-over): The Islamic faithful are called to pray five times a day, to abstain from alcohol, pork, and interest.

SHEIKH RASHID LAMPTEY, ADAMS CENTER MOSQUE, VIRGINIA: And it is a duty on the believer to help another believer, man or woman. It is the duty. And helping does not mean that you should put the person into more difficult, strict situation.

OSIAS: The Muslim lifestyle isn't easy in America, where images of conspicuous consumption run rampant.

RAVIA AHMED, HOMEOWNER: OK, I'll be home in time for "Apprentice" (INAUDIBLE).

HASSAN AHMED, HOMEOWNER: You want to watch "The Apprentice" today?

OSIAS: Hassan and Ravia Ahmed have some typical trappings, television, one credit card, and a house. But the Pakistani Americans are traditional too. Like most Muslims, they don't believe in debt, a challenge the Ahmeds had to navigate when buying their first home.

HASSAN AHMED: We wanted to start looking for a home as soon as possible, just because, economically, I just didn't want to rent anymore.

OSIAS (on camera): So the Ahmeds, like many Muslim in their situation, got an Islamic mortgage. Owners put 10 to 30 percent down in exchange for a partnership with a bank or mortgage company. Technically, no interest is charged. But a so-called profit fee is. That's tied to market forces, just like with a traditional mortgage.

REHAN DAWYER, SENIOR VICE PRESIDENT, GUIDANCE FINANCIAL GROUP: It's a lease to own, if you will, in many ways, simplest way to put it. Or you're paying a rent or this time. But at the end of this time, you will actually own the property outright as well.

OSIAS: First-generation American Ravia knows well the strictures of living interest free. Growing up in Detroit, she lived in a one- bedroom apartment with four siblings. Initially, she had reservations about this type of mortgage.

RAVIA HASSAN: The name was just different. It wasn't interest, it was just called something else. A little bit of window dressing.

OSIAS: Window dressing, perhaps, that has the imam's, Islamic spiritual leaders', stamp of approval. It's compliant with Sharia, Islamic law, that's all about intention.

RAVIA HASSAN: And it was actually, quite honestly, becoming an issue between him and I. And to have peace in the household, I just realized that it was, I guess, the lesser evil.

LAMPTEY: It is like a religious duty, a divine obligation to (INAUDIBLE).

OSIAS: A niche market that's caught on in the mainstream. So far, a handful of more traditional companies like Freddie Mac and Fannie Mae have gotten in on the action too.

DAWYER: We cannot make money from loaning money or borrowing money. So that's a very important thing. OSIAS: Just under half a billion in business for this company in under three years of offering the product, a product that for some offers peace of mind and spirit and a shelter to enjoy it.

Kimberly Osias, CNN, Washington.


WILLIS: It's too bad more Americans aren't concerned about mortgage debt. Truth is, too many of us are taking on more mortgage debt than we should, and bankers seem all too happy to help.

The interest-only loan is a good example. These loans are popular because they cut your monthly mortgage cost by as much as 20 percent. But the downside, they're big. After that introductory period, your payments jump a lot, as much as 40 percent, maybe even more, as you're forced to repay that principal in a shorter period.

My advice, stay away. Most of us would be better off in a plain- vanilla 30-year mortgage, because sometimes old-fashioned is better.

Coming up next on OPEN HOUSE, whether it's for potential buyers or your own enjoyment, we'll show you how to spruce up the outside of your home.

But first, the mortgage numbers.


WILLIS: A little color, a little cleaning can go a long way. In our weekend project, we tackle curb appeal with home stager Nairn Friemann.


WILLIS: So Nairn, it's summertime, people want to know how to fix up the outside of their house. What would you do?

NAIRN FRIEMANN, HOME STAGER: Well, first of all, clean, polish, add color.

WILLIS: How do you add color?

FRIEMANN: Flowers. It's the cheapest and the fastest way to give your house a pop of color.

WILLIS: And you're going to clean, for example, this house by doing what?

FRIEMANN: Well, windows, always, but in this case, we're going to take a really close look at the siding.

WILLIS: All right.

FRIEMANN: Paint the siding, the trim.

WILLIS: Sounds like a lot of work. Let's get started.


WILLIS (voice-over): Create a border with flowers to add color, along with a crisp, clean feel.

(on camera): So you shows Impatiens today, why?

FRIEMANN: Well, they're very inexpensive, and they add instant color, and they do very well in shade or sun.

WILLIS: Now, how far apart should I plant these?

FRIEMANN: About five to six inches. They're going to spread very quickly. And you don't have to plant them very deeply, which (INAUDIBLE)...

WILLIS: How deep?

FRIEMANN: Oh, a couple of inches. Not very deep at all.

WILLIS: OK. All right. Well, that's pretty fast too, in addition to being cheap and colorful.

(voice-over): New flowers can take care of color. But it's up to you to keep the exterior of your house spic and span. If your siding is really dirty, consider having it pressure washed. For a quick do-it-yourself fix, grab some cleaning solution and your hose.

FRIEMANN: First of all, we're going rinse off the wall, then we're going to put the solution on, let it set for about two to three minutes, and then we're going to rinse again and wipe off.

WILLIS (on camera): Well, that looks great. I can really tell a difference.

That's really going to brighten up the house.

(voice-over): Don't forget sports equipment. A little mildew cleaner can go a long way. Summer humidity can make mold grow like mad. So attack the problem before your white hoop goes green.

(on camera): So Nairn, this is a mildew remover. How long do I leave this on for?

FRIEMANN: Two to three minutes. And that's going to take some elbow grease. You're going to have to scrub that afterwards.

WILLIS: But I hope the payoff is pretty dramatic.

FRIEMANN: Absolutely. Have your friends over to play some hoops.

WILLIS (voice-over): So you've added color and cleaned like crazy. But before you invite your friends over for your backyard bash, make the best use of your space. (on camera): Look at this waste of space. I bet we could put this to use.

FRIEMANN: Absolutely. It should be decorated as an outdoor room.

WILLIS: Well, let's get started.

FRIEMANN: Let's go.

WILLIS: So this is great.

FRIEMANN: Isn't it?

WILLIS: Remind us again what we learned today. If you're going to fix up your house, what are the three steps?

FRIEMANN: Clean, add color. And if you've got time, you know, go and maximize the space in the outdoors.

WILLIS: And the most important thing, sit back and enjoy it, right?

FRIEMANN: Absolutely.


WILLIS: And remember, curb appeal is the first thing you need to attract potential buyers.

We'll be right back at a look at next week's show.


WILLIS: Coming up next week on OPEN HOUSE, becoming a landlord. It can be both a source of income and headaches.

Also, going green. We'll look at how to make your home environmentally friendly.

And clean out that garage, just in time for fall.

Plus, 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. Have a great weekend.


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