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Housing Market Has Hit Peak; Plan Might Eliminate Mortgage Interest Deduction; More People Move To Coasts; Calls For A National Disaster Fund; Getting Your Yard Ready For Winter;

Aired November 5, 2005 - 09:30   ET


BETTY NGUYEN, CNN ANCHOR: Now in the news, President Bush and Central American leaders are winding down the Summit of the Americas. When they leave, they'll probably see the damage from demonstrators. Protesters don't like President Bush's free trade plan.
The U.S. embassy in Paris warns American travelers about the ongoing rioting in France. Americans are told to avoid riot areas, and be diligent when riding trains or buses. The rioting began in the northern Paris suburbs 10 days ago, but has spread to other cities.

Tony and I will be back at the top of the hour with a live report from Houston, Texas, where the manhunt continues for an escaped death row inmate. You see him there.

But in the meantime, OPEN HOUSE begins right now.

GERRI WILLIS, CNN ANCHOR: There have been some pretty scary headlines about home prices this week, but we have some good news for anyone worrying about home values. Today on OPEN HOUSE, I'll show you how to navigate a choppy market.

Good morning, I'm Gerri Willis.

For the first time, real estate's top trade group says the housing market has hit its peak, and that's something coming from the industry's biggest cheerleader.


WILLIS (voice-over): If ever there was a bull for the real estate market, it would be David Lereah. The chief economist for the National Association of Realtors wrote a book this year entitled, "Are You Missing the Real Estate Boom?" On its cover, Lereah forecasts that home prices will climb through the end of the decade.

But now, Lereah has changed his tune, a little bit.

DAVID LEREAH, NATIONAL ASSOCIATION OF REALTORS: Well, it is the peak of the boom. The boom is winding down, though, to an expansion. So this isn't a boom going bust, this is a boom winding down to still some growth, but it's going to be slower growth. Because of that, it's a seller's market that's turning into a buyer's market.

WILLIS: One top mortgage insurer takes it a step further. The PMI Group released its risk valuation index in October, saying there's more than a 21 percent chance house prices will decline within the next two years. It lists the markets with the most risk. It says home prices in these cities have gone up faster than incomes.

MARK MILNER, PMI GROUP: The highest-risk metropolitan areas in the United States are Boston, the San Diego area, Long Island in New York, Santa Ana, California, sort of Orange County in the Los Angeles area, and then the Oakland area in the Bay Area of California.

WILLIS: The index also shows the areas of the nation PMI believes to be overvalued. The top three include Los Angeles, Sacramento, the Riverside areas in California, followed by Edison, New Jersey, San Jose, and Oakland, California.

Lereah says that's going too far.

LEREAH: I think their index is irresponsible. I think it doesn't look at real market fundamentals in those local areas. So if I had to sum it up, I'd say it's poppycock.


WILLIS: Clearly, even the experts disagree. But if you are worried about your market softening, we've got some advice.

Here to help is the author of a new book called "House Poor." Her name is June Fletcher.

June, great to have you here.

JUNE FLETCHER, AUTHOR, "HOUSE POOR": Thanks very much, and I enjoy being here.

WILLIS: You know, I know a lot of people out there, they've bought houses in the last few years, and we've seen prices go up 53 percent in five years, incredible amount of appreciation. But people have to be thinking, Boy, did I ever pay for this, and will I ever get my money out?

FLETCHER: Well, you know, that's something we really should worry about these days. You know, we have mortgage rates now, they're at a six-year high. Yesterday, there was information came out that even one-year adjustable rates are at a three-year high.

WILLIS: Right.

FLETCHER: So, you know, really, what has been making this whole market go, with the fuel for this market, has been low mortgage interest rates.

WILLIS: Exactly, June, but if you're one of those people who's worried about whether you can make good on your investment, what are the kinds of things you can do to make sure you can get your money out? Now, I know you've got a lot of great ideas to help people out.

FLETCHER: Well, one of the things that I wrote about in "House Poor," really, the whole point of "House Poor" is to give people practical advice of things they could do. One thing is, you don't have to put in the beautiful sink that looks like a river rock or all the orange refrigerator or the trendy ...

WILLIS: Don't overspend, right?

FLETCHER: Right, don't overspend. You really shouldn't spend more than 10 percent, you know, of the...

WILLIS: Of your home's value.

FLETCHER: Of your home's value.

WILLIS: I think that's a great rule of thumb...


WILLIS: ... because a lot of people wonder, How much should I spend? And you're saying, Cap it at 10 percent of your home's value.

You also have some great pointers on analyzing your marketplace. You've got to know what's going on in your individual marketplace.


WILLIS: What do I look at, June?

FLETCHER: Well, you know, you need to think that it isn't just one overall housing market. There are lots of different housing markets. And some are undervalued, like Denver is four percent undervalued. Washington, D.C., is 18 percent overvalued.

So you can have undervalued market, overvalued market. You need to look at appreciation. You need to look at inventory, you need to look at interest rates, you need to look especially at job growth. Are there jobs coming into the market, or are the jobs going out?

WILLIS: Right.

FLETCHER: A lot of this you can get from local business section of your newspaper. You can get it from Realtors. You should really just look at your neighbors and say, you know, are they getting bidding wars? Are, you know, people going, you know, bidding up the price of their homes? If that's starting to slow down, then it really is time to ...

WILLIS: I've got to interrupt you here, because you've got a great point that you make. Make memory points in your house. What do you mean by that?

FLETCHER: Well, you know, that's right. You need to make memory points. Instead of spending money on, you know, expensive things like kitchens and baths, instead just, you know, put in something like a window seat, or put in a focal point like a novelty window. I remember one fellow I talked to was house hunting, and he saw this beautiful window in the eave of a house. It only cost $200. He said he bought the window with the house attached. WILLIS: Wow, that's so true.


FLETCHER: That's what you really have to think of.

WILLIS: That's so true.


WILLIS: I think people always look for that one special thing.

June, your book is "House Poor," chockablock full of great advice. Thanks for being with us.

FLETCHER: Thank you very much for having me.

WILLIS: Coming up on OPEN HOUSE, homeowners beware, the president's tax panel is talking about eliminating your mortgage deduction. That's right.

And home buyers are flocking to the coasts in record numbers. Could you be footing the bill for all those beachcombers? We'll explain.

But first, your tip of the day.


WILLIS (voice-over): You can save money in the long run with an energy-efficient mortgage. They enable you to finance the cost of a major renovation, like adding solar panels that will save you energy. That means you'll have lower utility bills, more cash in your pocket, and therefore, qualify for additional mortgage money.

And when it comes time to sell, your house will be more marketable.

Energy-efficient mortgages are available in all 50 states. For more, check out the Department of Housing and Urban Development's Web site at

And that's your tip of the day.


WILLIS: OK, homeowners, listen up. The president's tax overhaul panel turned its plan over to the treasury secretary, John Snow, this week. Now, as expected, it recommends getting rid of the mortgage interest deduction, and replacing it with a much lower tax credit.

Now, critics complain it amounts to a tax hike for homeowners, and could cause a drop of as much as 20 percent in home prices. That's 20 percent, you heard me right.

But the panel says fewer than a third of taxpayers benefit from the mortgage deduction. They say their plan would benefit everybody.

Here's John Snow.


JOHN SNOW, TREASURY SECRETARY: Now the ball's in our court to look at what they've done, use that as a starting place, and then try and figure out what makes sense in terms of recommendations to the president.


WILLIS: More from Secretary Snow on Jack Cafferty's "IN THE MONEY." Tune in at 1:00 p.m. Eastern today.

Now, the plan should make its way to the president's desk by the end of the year. It's not expected to become law in its current form, thank goodness. We'll keep you posted.

And an amazing story. Two weeks after Hurricane Wilma, some people living in Florida are still without power, or gas, for that matter.

What's more, people are moving to the coasts in record numbers. What's up with that?

Susan Candiotti is following the trend.


MARK TOOLAN, PLANTATION, FLORIDA, RESIDENT: These are concrete roof tiles that came from the top of the roof.

SUSAN CANDIOTTI, CNN CORRESPONDENT (voice-over): Eight hurricanes pounded Florida in the last two years, yet Mark Toolan has no plans to abandon his piece of paradise in the Sunshine State.

TOOLAN: It's November 3, I'm here in shorts, sandals. Florida's my home. My family's here. My wife and I both have careers here. So, you know, barring a really catastrophic event, we wouldn't consider relocating.

CANDIOTTI: Government studies estimate an average 1,300 people every day move to the shoreline. From Maine to Texas, more than 53 percent of the U.S. population potentially in harm's way.

Gordon Stewart studies the impact of all that growth for the Insurance Information Institute.

GORDON STEWART, INSURANCE INFORMATION INSTITUTE: It means more people are living in areas where the values of the homes are higher, and their exposure to destructive events is greater. That's a difficult combination, more property, worth more, in more harm's way.

TOOLAN: My insurance this year is about $6,000. CANDIOTTI: Mark Toolan's premium's doubling in recent years. He fully expects premiums to go up, and deductibles too, now often based on the percentage of insured value. Some policy holders will be dropped as insurance companies collapse over payouts, or to limit their own liability.

Some suggest a local tax on those who live in high-risk areas.

PROF. PHILIP BERKE, UNIVERSITY OF NORTH CAROLINA: It costs a lot of money for public infrastructure, roads, highways, sewer, water lines, and so on, that is at great cost to the federal government.

WILLIS: For Mark Toolan, a Florida address is worth it.

TOOLAN: We don't have a state income tax. We don't have to worry about the heating oil costs this winter, or any winter.

WILLIS: For now, Toolan says, he's staying put.

Susan Candiotti, CNN, Plantation, Florida.


WILLIS: So who should pay for all this?

Joining us now, Patricia Borowski. She's vice president of the National Association of Professional Insurance Agents. Now, her group wants Congress to create a national disaster fund that everybody would pay for.

And we also have Bob Hunter, director of insurance for the Consumer Federation of America. He says people in low-risk areas should not foot the bill for those living at the water's edge.

Welcome to both of you.



Hi, Bob.

WILLIS: So Patricia, let's start with you. You've got this really interesting idea about a national catastrophic fund. How would it work, who would pay for it?

BOROWSKI: Well, right now, of course, when we pay into insurance premiums, and additionally our taxes, all of that goes to be able to respond to losses and claims that happen. And each us bears a portion of responsibility and costs ...

WILLIS: Are you talking about FEMA here, Patricia? I'm just interrupting you just to clarify a little bit. BOROWSKI: Well, government has the primary responsibility -- FEMA, the federal government, state governments, local governments -- to respond in these kinds of natural catastrophes. And what...

WILLIS: Right.

BOROWSKI: ... we're looking for is to improve what is already there, that is, to create a system where we're better prepared, where there is a program where those that have the largest amount of exposure...

WILLIS: Right.

BOROWSKI: ... can have an insurance program. It does have a reserve...

WILLIS: OK, who pays, though, Patricia? Who puts the money in the fund to pay for the claims?

BOROWSKI: Right. In taking the model of the federal flood program, those that have the exposure and purchase the properties will be the ones to certainly pay the largest amount of that cost. That will lessen the amount of money that the federal government and local governments...


BOROWSKI: ... and state governments...

WILLIS: All right.

BOROWSKI: ... already pay out. It...

WILLIS: So it sounds like we're talking about a fund that everybody pays a little bit into, but if you're on the coast, you pay more.

BOROWSKI: Correct.

WILLIS: Bob Hunter, tell me what you think about this, because I know you've thought a lot about this idea. It's not even really an initiative yet, I don't think. Is it a good idea?

HUNTER: Well, we have to wait for the details. But it seems to me that you have to be sure that if you're going have any kind of program to back up the insurance companies, that, A, it doesn't benefit the insurance companies at no cost, and the taxpayers end up paying it all. And B, that it doesn't encourage unwise construction.

If you give a subsidy to, say, high-risk areas, like along the coasts, or on earthquake faults, you're going to see a lot of construction there. And we'll all end up paying for it...

WILLIS: Right.

HUNTER: ... because it would be very unwise to have below-cost insurance, you know, particularly on new construction.

WILLIS: Well, isn't that the problem right now? We don't have adequate setbacks, we're basically sponsoring...


WILLIS: ... these incredible homes, Patricia?

BOROWSKI: Absolutely, Gerri. And this is exactly why we have to have the engagement of government. The concept of having setbacks, having proper codes and inspections of codes, proper development, that is exclusively the purview and the decisions, number one of local communities, state, and the federal. It has to be coordinated...

WILLIS: Right.

BOROWSKI: ... because private sector can't impose those things.

HUNTER: You know the problem. The problem is, the federal government hasn't gotten the flood insurance program yet right.

WILLIS: What's wrong with it, Bob?

HUNTER: It's a mess. And I ran the program, and it was -- it had a lot of promise. And it would have mitigated construction...

WILLIS: Correct.

HUNTER: ... and it would have paid for the -- it would have reduced the federal disaster relief.

WILLIS: Right.

HUNTER: It hasn't worked. We're not getting...

WILLIS: Why not?

HUNTER: ... we're not getting the market penetration, the -- you see so many people uninsured after every flood.

WILLIS: Right.

HUNTER: You see homes going in on barrier islands where they don't belong.

WILLIS: Right.

HUNTER: It's not working, and I don't want to expand it to other things until they get the flood insurance program right.

BOROWSKI: We would agree...

WILLIS: So, Bob, let me -- Patricia, let me interrupt you for just a second here. Bob, what's wrong with having a national fund that everybody pays into? HUNTER: Well, what's wrong is, the way all the previous proposals have set it up in a way that would subsidize high risks. That's why the people who supported it are people -- these politicians from places like California and Florida. You don't find people from Montana supporting it, because it's always been a cross-subsidy for high risk, and that is a prescription for unwise construction.

WILLIS: Patricia...


WILLIS: ... weigh in here, because...


WILLIS: ... I feel the pain here. I live in New York...


WILLIS: ... I don't necessarily want to pay for people who have problems in Florida.

BOROWSKI: Look, in terms of government response, there is cross- subsidy no matter where we are. We pay into taxes, and the people in Montana who are cattlemen get range subsidies, et cetera. So that is the purpose of government.

We absolutely agree with Bob. The federal efforts thus far have to be improved. And part of that also is understanding that, as these insurance premium funds are created, they cannot be rated by subsequent decisions of Congress or any administration to be used for other purposes.

HUNTER: Yes, good luck, Pat.

BOROWSKI: And additionally...


BOROWSKI: Right, and additionally...

WILLIS: Bob, what are you saying there?

HUNTER: I'm saying good luck.

WILLIS: What's your point?

HUNTER: I've been in both state and federal government, and I know how funds get raided. There's just no way to guarantee them all at all.

WILLIS: Patricia, here's a wild idea.


WILLIS: What about narrower profit margins for the insurance industry? Is that a possibility?

BOROWSKI: Well, the issue there, Gerri, is, not all of these natural catastrophes are insured by the private sector insurance industry. For instance, flood never has been...

WILLIS: Right.

BOROWSKI: ... and this is exactly why the federal government stepped in. So the issue, additionally, is making sure that this time...


BOROWSKI: ... we do make the commitment...

WILLIS: You know...

BOROWSKI: ... to mitigation.

WILLIS: ... Patricia, we're going to have to leave it there. I want to thank my guests, Bob Hunter, Patricia Borowski.

BOROWSKI: Thank you.

WILLIS: Thank you both...

HUNTER: Thank you.

WILLIS: ... for joining us...


WILLIS: ... really lively conversation. Thanks so much.

BOROWSKI: Appreciate it. Bye-bye.


WILLIS: Are you green with envy? You can have a lawn like this, no kidding, if you plan ahead. We'll show you all the right moves to maintain your lawn year round.

And here's a look at the mortgage numbers.


WILLIS: Welcome back to OPEN HOUSE.

You spent all spring and summer getting your yard in tip-top shape, but the work isn't over yet. Now, we're going to show you how to get your yard ready for winter.

Joining me now is Stephen Orr (ph). He's garden editor at "House and Garden" magazine.

Good to see you, Stephen. STEPHEN ORR, GARDEN EDITOR, "HOUSE AND GARDEN" MAGAZINE: Hi, how are you?

WILLIS: Good, good.

It's time to do some pruning. What should I be pruning?

ORR: Well, things like this sedum, this red flowered-sedum here, is a perennial that has really beautiful late blooms. Leave stuff like that as long as you like.

But things like this, this is a peony, and it's covered in powdery mildew. That's why it's ...

WILLIS: Yes, you can really see this here.

ORR: And also these hostas. The leaves have gone all yellow. They're eaten by slugs. They're not so attractive. So that sort of thing is great to just -- you could bring all that stuff down to at least about three inches.

WILLIS: So Stephen, people tend to think that evergreens don't need any care in the winter. You say that's not true.

ORR: That's not true. They play such an important role, because when you look out in a snowy landscape, or even if there's no leaves, you see that bit of green. What you really want to do, and start in the fall after Labor Day, is watering if the weather -- you know, because the weather's often very dry in the fall.

WILLIS: Give them a good soak, you say.

ORR: Give them a good soak with the hose once a week.

The other things is that winds comes through in the winter, and they really dry things out.

WILLIS: And you've got a handy-dandy product that will help us, and we just spray. What is this stuff?

ORR: Yes, yes, it's called an antidessicant. It's kind of a waxy coating on the plant.

WILLIS: What kind of mulch do I buy?

ORR: Well, this is the kind I don't like, and this is big pine bark nuggets. And the problem with it is, you can see the size of it. They're just really enormous people of wood. A lot of people like this because they think it looks tidy. But, to me, it just looks a little bit too big.

And also, the problem is, mulch is supposed to biodegrade into the soil. And...

WILLIS: This doesn't.

ORR: ... this doesn't. It stays around forever, it falls into the path, you know, it's just -- becomes a big mess.

WILLIS: You like this kind.

ORR: I do. This is -- there's a lot of different kinds you can buy. This is cedar bark mulch that's really shredded. And it almost looks like really great soil already.

WILLIS: So when do I mulch?

ORR: Well, the best time to mulch is counterintuitive to most people, because they want to put it on before it gets too cold. They think of it like a blanket. But really, what it is, you want your garden to go to sleep first. And you need -- so you need freezing temperatures, but not really, really cold. So you want things to get below 32 down into the 20s. You want everything...

WILLIS: Overnight.

ORR: Yes. And you want everything to die, cut everything back, and then you put your nice layer of mulch on top of that, so that you keep the ground cold.

WILLIS: How much am I putting down?

ORR: Well, you don't want to put down too much. You should ...


WILLIS: ... got a lot, here.

ORR: We've got a lot here. But what you do is, spread this out to a layer of about two to three inches, depending on where you live. If you live really in the north part of the country, you want to mulch a little more, and you want to mulch over the plants you want to protect. If you're...

WILLIS: Over the plants.

ORR: Yes. But if you're down south, you just want to mulch and keep the soil nice and well maintained.

WILLIS: OK, so let's go over what we learned today. A-number- one, prune your perennials.

ORR: Exactly. You want to get the old stuff out so that you won't have any problems next spring when all the plants want to start their growth again.

WILLIS: Protect those evergreens.

ORR: That's right. Winds are bad in winter, sections of -- the worst thing you can have is a lot of strong wind.

WILLIS: And finally, you've got to mulch.

ORR: You have to mulch, and you have to mulch not too early, which is the big mistake people make. You want to mulch a little later, after the garden's gone to sleep.

WILLIS: All right. Well, Stephen Orr, I feel like we're ready now. Thank you so much.

ORR: I think we're ready. Let's get to work.

WILLIS: Coming up, I'm answering your mold questions. Stay with us. We'll be right back.


WILLIS: Boy, did we hear from a lot of you after our show on mold.

One e-mail in particular got my attention. Robert N. wrote that wind-driven rain has caused a leak in his roof, and mold in his bedroom ceiling. How can he get his insurer to pick up the repair costs?

Well, Robert, damage from wind-driven rains is exactly what your home insurance is supposed to take care of. But you have to make your claim the right way.

First, tell your insurer about the problem when you first notice it. Don't delay. And second, make temporary repairs, and don't pay for permanent repairs until your insurer can actually look at that damage firsthand.

Finally, check to make sure that your policy doesn't include what they call a microbial-matter exclusion. Yes, it's technical, but what it means is, We're not paying for your mold damage.

However, they should pay to fix the leak.

One more thing, we talk a lot on OPEN HOUSE about home prices. And there is some evidence that the boom is still on. Take a look at this property on the market in Vegas. This 700 square feet of space can be yours for the low, low price of $1.2 million.

And, in fact, the cat food containers stacked on the porch are included.

Want your questions answered? E-mail us at

And you can find Web sites and more information from today's show at

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

The day's top stories are next on CNN SATURDAY.

Have a great weekend.


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