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Open House
President Bush asks Americans to consume less energy; Rising fuel prices adding financial stress; Cost of building materials rises sharply
Aired October 01, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRICKA WHITFIELD, CNN ANCHOR: Taking our top story now in the news, there have been several explosions on the Indonesian tourist island of Bali. Local radio reports say three Western tourists have been injured. Most of the blast went off along a beach lined with seafood restaurants. We'll have continuing updates on the blast throughout the day.
Tony and I will be back at the top of the hour.
OPEN HOUSE begins right now.
GERRI WILLIS, CNN ANCHOR: Heating your home this winter is going to cost you plenty. What can you do?
Good morning. I'm Gerri Willis.
Even before Hurricanes Katrina and Rita made landfall, oil prices were on the rise. Now, it's gone from bad to worse. Consumer groups say home heating oil, as well as natural gas prices, are expected to increase significantly from last year.
There are ways, though, to ease the pain.
Today on OPEN HOUSE, we'll show you some really smart ways to save money on your energy bill.
But first, news from both President Bush and Federal Reserve chairman Greenspan this week affecting homeowners everywhere.
(BEGIN VIDEOTAPE)
WILLIS (voice-over): With the one-two punch of Hurricanes Katrina and Rita stinging an industry already struggling to meet demand, Americans are being told to consume less energy.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: People just need to recognize that these storms have caused disruption, and that if they're able to, you know, maybe not drive when they -- (INAUDIBLE) on a trip that's not essential, that would be helpful.
WILLIS: But so far, it seems like old habits die hard. Americans are still filling up. The big change is, at the pump, cash is out, credit and debit are in. Some 70 percent of fill ups were paid by plastic in the first half of the year. That's up from 54 percent last year. That gain is due in part to gas station owners converting more pumps to credit-debit only. But mostly, consumers prefer to pay later.
One signal of distress, more Americans are missing payment deadlines, getting into debt by incurring late fees. Late credit payments reached an all-time high in the second quarter of this year.
JAMES CHESSEN, AMERICAN BANKERS ASSOCIATION: When we see delinquencies rise, we know there's financial stress in some households. We think that's gas price effect. We think there's little savings that many people have to rely on. And we've seen the Fed raise the price of credit now 11 straight times.
WILLIS: For consumers, the trouble from Rita and Katrina will linger into next year, as home heating oil prices rise. Your average energy bill may jump to $2,200 this winter, from $1,600 last year. Natural gas users will pay an additional $400, at least, that according to Consumer Power Line, which helps corporate clients manage energy bills.
The trouble doesn't stop there. Your electric could rise too, because 17 percent of power plants are fueled by natural gas.
And another warning this week from the government, the piggy bank that Americans have been most likely to tap in recent years, home equity, may be running dry. Fed chairman Alan Greenspan says Americans have grown too dependent on home equity loans and lines of credit for quick cash.
(END VIDEOTAPE)
WILLIS: So what are homeowners supposed to do?
Michael Gordon, energy economist and president of Consumer Power Line is here with some practical advice.
Michael, welcome.
MICHAEL GORDON, PRESIDENT, CONSUMER POWER LINE: Thank you.
WILLIS: So let's talk about these prices. Exactly how much will people be paying for heating oil this winter?
GORDON: Well, the bigger your house, the more you pay.
WILLIS: Well, that's obviously true.
GORDON: And in the North -- the further north you are, the more you pay. So $2,100, $,2200 in some northern suburbs of...
WILLIS: Wow.
GORDON: ... Boston.
WILLIS: And how much will that be up from last year?
GORDON: Roughly, last year, $1,500, $1,600. But generally, with heating oil, which is less regulated, you have more control over the prices than you do with the more regulated commodities, like natural gas.
WILLIS: Well, I was going to ask you about natural gas. Is natural gas going up as much because so many people in the Midwest are heating those homes with natural gas?
GORDON: It is close. It's -- you're a little bit protected by regulation. But then you have less control.
WILLIS: So there's no way to really mitigate the fact that prices are going up. Will we also see $400, $500, $600 increases for natural gas?
GORDON: Yes, yes. In some cases, more, actually.
WILLIS: Oh, wow.
GORDON: But the -- you can -- where it's deregulated, you can save taxes by moving to a deregulated supplier of natural gas, you know, 4, 5, 6 percent savings on taxes. But that's the limit of your control on prices.
WILLIS: Well, that's something, at least.
Now, I know you talk a lot about getting that oil supply in, paying the right price for it. Do you cap your price with your supplier? Do you fix it? What is the best way to go?
GORDON: You know, I'm an advocate of a cap rather than a fix.
WILLIS: Why is that?
GORDON: It costs about another $100 to cap, if it's a real cap, because there are (INAUDIBLE)...
WILLIS: You can get confused, right?
GORDON: Yes, absolutely.
WILLIS: OK.
GORDON: But I've seen a lot of winters like this before. And more than I'd like to admit. And it goes up at the beginning of the winter. There's a hysteria, and hysteria around the prices going up, but then, as the people over store on oil, oftentimes, about one in two winters, it collapses toward the second half of the winter.
WILLIS: So I could actually see prices go down, when, February, March?
GORDON: Yes, often early February, they start to collapse.
WILLIS: So does that mean I cap or fix?
GORDON: That means you cap.
WILLIS: Because? GORDON: Because when they go down, you get to get the advantage of them going down. But you have to be really careful, because you could get a supplier who says, Yes, I'm capping your price, and if my retail price goes below your capped price, then you get a better price, but they're in control of that. So that's a baloney cap.
WILLIS: Clearly, the devil's in the details, and you have to be careful with what you buy. A lot of people are fans of co-ops. That's when consumers get together, they buy together, they try to lock in a wholesale price. Is that always a good thing to do?
GORDON: Well, it's generally a good thing to do. A lot of these co-ops are nonprofit, nonprofit companies. And that is superb. You pay $20, $25 as a membership fee, and then...
WILLIS: You make that up, though, quickly, right?
GORDON: Yes, definitely, particularly because the margins that heating oil's -- a good co-op ties to wholesale, so, rather than to retail. You know, 10-cent discount from retail means nothing if the retailer is in control of the retail price.
WILLIS: Wow, and that's always the case, right?
GORDON: Yes.
WILLIS: Exactly. So you have to be careful when you're buying from a co-op as well.
I have to get you to another topic, though...
GORDON: OK.
WILLIS: ... because I think one thing people haven't thought about, sure, gas prices, natural gas going up. We have gas prices going up, we have home heating oil going up. But there is the situation that electricity is going to go up as well. What do you think people are going to see in their electric bill?
GORDON: Oh, boy. It tracks natural gas, roughly. And we're going to have 40 percent increases in natural gas.
WILLIS: Ouch.
GORDON: And over the next several years, we're going to see the same thing with respect to electricity. It's regional, based on where they have the markets, right, deregulated correctly. You're going to see less increases, and, more importantly, more control over your bill, in the (INAUDIBLE) -- so that the New York markets, they're getting close to getting it right. It's really exciting to see.
I think soon, come October, the New England markets are going to be close to right.
WILLIS: Clearly there's a lot of change going on. And I think what's so interesting here is that prices are different in different parts of the country. Nobody pays the same amount for energy. So it really depends on where you live, right, Michael?
GORDON: Yes, it really does. Yes.
WILLIS: Just one other thing to get you to here. So at the end of the day, what's your preference? Is it a co-op, or is it capping the price with the contractor?
GORDON: I would suggest that you cap the price with a co-op. So you get a co-op that ties to wholesale. You get the supplier, you get the co-op to say, Give me a cap. The price comes down if wholesale comes down. And then you're protected, no matter which way the markets go.
WILLIS: And sounds like the best of all possible worlds. Michael Gordon, thanks for being with us today.
GORDON: Well, it's a pleasure. Thank you for having me.
WILLIS: Up next, rising construction costs are hurting homeowners around the country. Allan Chernoff will be here to explain.
And a little later, what can you do to prepare your home for a cold winter? Keep those energy bills in check.
(COMMERCIAL BREAK)
WILLIS: You may want to reconsider that remodeling project you've been planning. All kinds of building materials used to come from the Gulf region. And now, who knows what will happen?
Here's Allan Chernoff.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): Make way for some valuable building materials. The hurricanes disrupted the nation's supply chain. As a result, inventories are tight. That means the cost of renovating your home, or even building a new one, is going to be rising.
(on camera): Some of the biggest price increases have been for lumber. Two-by-fours like this, used for frames, have seen their prices go up by 14 percent since Hurricane Katrina hit.
But even more dramatic, prices for plywood and other sheets of wood, up more than 40 percent over the past month. Not only did Hurricane Katrina knock out production in some parts of South, but it also prevented imports, especially from Brazil, from entering the country.
(voice-over): New Orleans is the nation's second-largest port for cement imports, so the port's closure tightened supply. The soaring price of oil also is affecting material prices. Plastic pipes for plumbing are made from petroleum, as is asphalt for roofing, and blacktop, used for driveways. KEN SIMONSON, ASSOCIATION OF GENERAL CONTRACTORS OF AMERICA: If you were planning to put down a driveway, or add a new foundation for a part of the house, that that's something that you may find tougher to get as the supply shortage worsens.
CHERNOFF: With diesel fuel prices up, truckers are passing along the higher costs of delivering the goods. Retailer John Schroeder says asphalt prices are up as much as 15 percent since Katrina.
(on camera): What would your advice be to, say, the average homeowner, if they're thinking of doing a project?
JOHN SCHROEDER, BRUCKER BUILDING SUPPLY: Well, I'd either say, start right away, or if you don't have plans to start it immediately, then you may want to reconsider or reevaluate your financial situation before you actually go ahead, full steam ahead into something and find out that your building material costs have doubled.
CHERNOFF: That could happen here.
SCHROEDER: Yes.
CHERNOFF (voice-over): Some of the immediate price hikes may ease in the coming months, say industry experts, especially if the cost of crude oil stabilizes. Lumber mills will be processing trees the hurricane uprooted, which should help supply bounce back.
But as Gulf Coast evacuees begin rebuilding homes, perhaps sometime next year, new demand for materials could push prices higher again.
(END VIDEOTAPE)
WILLIS: So Allan, 40 percent for lumber, you said even higher than that. Now, is this a situation that's going to persist through the spring, when people are going to start putting on additions into their house?
CHERNOFF: Lumber tends to be a little volatile. The number's actually 43 percent...
WILLIS: OK.
CHERNOFF: ... but part of that is because people were buying so much of it to board up their homes.
WILLIS: Right.
CHERNOFF: So that demand is going to come down. The supply chain will even out, so we'll start getting better supply. The demand will drop. So the prices will probably come down in the near term...
WILLIS: But will I-...
CHERNOFF: ... but the longer term, however... WILLIS: What happens, though, when people start rebuilding those houses in New Orleans? Those prices have to come right back up, right?
CHERNOFF: And they will be rebuilding not only in New Orleans and along the Gulf Coast, but keep in mind, so many of these evacuees, they're gone for good.
WILLIS: Right.
CHERNOFF: And they're going to build new homes in other cities, not just Houston, all over the country.
WILLIS: Well, you know, I know a lot of people out there are thinking, OK, so when do I time my reno? Can you do that at this point? Or is there any way of guessing where prices are going to go for building materials?
CHERNOFF: Well, I think if you have a project in mind, you're ready to go, probably a good idea to get going, get it done. You can get the materials, and hopefully avoid some major price increases down the road. Because things in the near term are probably going to come down a little bit after a month or two. So that's probably the best advice you can follow.
But I think, also, in the package we talked about the fact that you want to evaluate your financial situation to make sure, if it's a longer-term project, that you can still afford it.
WILLIS: Right. I think that's key. Allan, any substitutions you think that will go on as people kind of wrestle with these prices and the ups and the down?
CHERNOFF: Well, some team may have to scale back. Let's consider another factor too. Lots of people, as you know, borrow to do these home improvements.
WILLIS: That's right.
CHERNOFF: Interest rates, they're going up. They'll probably keep going up. So the cost of a home equity loan, for example, would be higher, increasing further the cost of renovating.
WILLIS: Well, it's just inflation across the board on the show today, from gas prices to building materials, you name it. Allan, thank you so much.
CHERNOFF: Pleasure.
WILLIS: Now, a follow-up for you. Remember, on our last show, we talked to attorney Richard Scruggs. He said he was about to file a major class-action suit on behalf of Gulf Coast residents. So I contacted him again this week and asked him where that lawsuit stands.
(BEGIN VIDEO CLIP) RICHARD SCRUGGS, ATTORNEY: We're going to file suit probably on Monday. We wanted to give the political powers the opportunity and -- to negotiate a resolution without having to file suit, although we have organized now, and we're ready to file right away.
(END VIDEO CLIP)
WILLIS: Also, an insurance trade group tells us that residents of states throughout the Southeast, that's from North Carolina all the way to Texas, can expect premiums to rise by a minimum of 30 percent in the wake of hurricanes. If Scruggs' suits are successful, that number can go even higher.
Home insurance remains a key issue after the hurricanes, and we're going to stay on top of that story for you.
Coming up, save energy and save money. What you can do right now to make your home more energy-efficient and cut costs on your next bill.
That's just ahead on OPEN HOUSE.
But first, the mortgage numbers.
(COMMERCIAL BREAK)
WILLIS: Welcome back to OPEN HOUSE.
Making sure your home is energy-efficient can save you big time on energy bills.
Come along with me as we conduct an energy assessment of this house.
(BEGIN VIDEOTAPE)
WILLIS: Joining me now is Matt Dean from the Association for Energy Affordability.
Matt, welcome.
MATT DEAN, ASSOCIATION FOR ENERGY AFFORDABILITY: Thank you.
WILLIS: So you say the place to start, if you get one of those energy bills that is out of control, is right here...
DEAN: That's right.
WILLIS: ... in the furnace room, the boiler, actually, is what we have. What am I looking for?
DEAN: Well, what you're looking for is, first sign would be your energy bill. If your energy bill seems really high, something surprisingly high, we would recommend that you have, you know, your boiler guy come in and take a look at your system. Use a piece of equipment like this. And what he's going to look for is, he's going to try to test your efficiency.
WILLIS: What are we looking for here?
DEAN: What we're looking for is 75 percent or better.
WILLIS: So it's just a straight-up number, efficiency ratio, really.
DEAN: Right.
WILLIS: And I got to tell you, Matt, we're not doing too well on this house.
DEAN: No, not really. (INAUDIBLE).
WILLIS: What's the number there?
DEAN: We've got about 69 right now.
WILLIS: So obviously, there needs to be work done. What would you do to fix the problem?
DEAN: Well, I think what we'd like to do is have a clean and tune done to the system. And then we'd run the test again, and see what efficiency we get. And based upon that, if we got a, you know, a substantial increase, we'd say, All right. If we didn't, then maybe we would go looking at the distribution system, and then see ...
WILLIS: It's a two-part-
DEAN: Right.
WILLIS: ... approach that you're going to take.
DEAN: Right.
WILLIS: But if that number goes higher, my bills go lower, right?
DEAN: That's right.
WILLIS: Awesome.
DEAN: Great.
WILLIS: OK, Matt, let's take a look at the rest of the house.
DEAN: OK.
WILLIS: You've shown us what the professionals can do. But what can I do myself?
DEAN: Well, one thing you can do is install CFL (ph) lighting...
WILLIS: Wow. DEAN: ... compact fluorescent lights. What we would recommend is that you would replace the five most-used light in your home, per floor, with these bulbs. And...
WILLIS: How much do I save?
DEAN: You should save about 5 percent on your energy bill.
WILLIS: That's a lot, that's a lot of money.
DEAN: Yes.
WILLIS: Now, are these expensive to buy?
DEAN: Four or five dollars. It's not so bad. I mean, they last 10 years.
WILLIS: They last 10 years?
DEAN: That's right.
WILLIS: That's awesome. Well, that's a great cost-efficiency ratio.
DEAN: That's right.
WILLIS: And great savings on your energy bill.
DEAN: Right.
WILLIS: What's the best way to test for leaks?
DEAN: Well, what we generally do is install a blower door like this, put the home into wintertime condition, that means closing all the windows, opening up the interior doors. Crank this thing up, see what kind of number we get.
WILLIS: And when you say crank it up, the air's going in, or it's going out?
DEAN: The air is going to be blowing out of the home. We're going to depressurize the home.
WILLIS: OK.
DEAN: And that way, we can determine how many leaks there are.
WILLIS: Let's do it.
DEAN: All right.
WILLIS: So Matt, we've been looking at these numbers. Tell me, what do they mean, and how do you analyze it?
DEAN: Well, the number in this window that said 7,500, that's cubic feet per minute of air rushing out of the home. For a home this size, it should be about 3,000 cfm.
WILLIS: So that's not a good number?
DEAN: That's really leaky. So what we would recommend is that the homeowner have insulation installed in the home, have weather- stripping and caulking done, maybe have the windows replaced if they were in bad condition, things like that.
WILLIS: Sealing all of those leaks...
DEAN: Yes.
WILLIS: ... and making sure that the air isn't moving in and out.
DEAN: Yes, right, exactly.
WILLIS: This is an incredibly quick way, though, to find out if you got problems.
DEAN: It's great. It's really great.
WILLIS: How much money I can save?
DEAN: If we combine it with the work downstairs with the boiler, 10 to 40 percent.
WILLIS: Ten to 40 percent...
DEAN: Right.
WILLIS: ... on your energy bill?
DEAN: (INAUDIBLE), right.
WILLIS: That's amazing. Matthew, thank you so much for helping us out today.
DEAN: You're welcome.
WILLIS: Coming up, my tips for saving even more money with energy-efficient appliances. Stay with us. More OPEN HOUSE is next.
(COMMERCIAL BREAK)
WILLIS: As we've been talking about during today's show, so much has changed in the last few weeks, and not just for the people along the Gulf Coast. Katrina and Rita didn't just damage homes, they rocked oil refineries and created huge demand for building materials.
That means your wallet will be squeezed, no matter where you live. Prices are higher for gas, for home heating oil, natural gas, electricity, you name it.
If your entire family budget was set in low -- with lower prices in mind, it's time to make some changes. Driving less is a good idea, but for many of us, it's not a practical solution. Let's face it, most of us still have to get ourselves to work and the kids to school every single day.
Here are three things you can do right now to cut your family's energy bill.
Number one, consider joining a co-op if you use oil to heat your house. Getting together with other consumers pays off, because you can buy oil at the wholesale price, rather than pay retail. If your home is heated by natural gas, there's not much you can do to cut the price you pay for energy. Just make sure your furnace is as efficient as possible, have it cleaned and tested.
Number two, little things can make a very big difference. Buy a programmable thermostat. They're inexpensive, and they'll save you big-time by switching off the heat when you need it least.
Finally, plan for the long haul. Energy is never going to be free, let's face it. For that reason, make sure you buy energy- efficient products and appliances. Look for the Energy Star label when you shop. And if a new fridge isn't in the budget this year, shave your costs by using fluorescent bulbs. They're not only energy- efficient, they last for 10 years.
For more advice on keeping your home energy-efficient, check out the Partnerships for Home Energy Efficiency at energysavers.gov. And for more information on getting an energy assessment for your home, go to the Association for Energy Affordability, that's aeanyc.organization.
Now, if you missed any of this information, and there was a lot of it, check out the Web site, cnnmoney.com/openhouse. And as always, you can e-mail us at openhouse@cnn.com.
That's it from us for now. Thanks for watching OPEN HOUSE. We'll see you here next Saturday.
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