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Open House

Existing Home Sales Increases, New Homes Waiting For Buyers; Southern California Housing Market; Americans Buy Homes In San Miguel; Summer Rentals And Smart Deals

Aired March 25, 2006 - 09:30   ET

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

BETTY NGUYEN, CNN ANCHOR: Now in the news, thousands across the country are protesting legislation aimed at cracking down on illegal immigrants. This is video from a demonstration in Phoenix yesterday. Look at the crowd. Congress is considering bills that would make it a felony to be in the U.S. illegally.
Norman Kember is finally home. The former hostage in Iraq arrived at London's Heathrow Airport about two hours ago. The two Canadian peace activists held with him left Iraq today. They were held hostage for four months. A fourth member of their party, American Tom Fox, was killed in Iraq.

I'm Betty Nguyen, live from CNN world headquarters right here in Atlanta.

"OPEN HOUSE" is up next.

And we're going to see you back here at the top of the hour.

GERRI WILLIS, CNN ANCHOR: We have stunning numbers on the housing market this week. On the one hand, existing home sales are on a tear, while new homes are just sitting on the market, begging for buyers.

Good morning. I'm Gerri Willis. Welcome to OPEN HOUSE.

We'll have lots more on this split decision, you could call it, on home sales in just a moment.

And later in the show, we'll take you through the ABCs of buying a home abroad.

We'll also tell you all you need to know about getting the best deals for a summer rental in this country.

But first, those confusing and contradictory housing numbers.

New home sales collapsed in February -- that's right, collapsed -- falling 10.5 percent. That's the biggest drop in almost nine years. And more new homes are on the market than ever before.

But existing home sales shot higher in February, up over five percent.

Meanwhile, inventories of both new and existing homes continue to rise, and the median home price is now just over $230,000, and that is the lowest level since July.

Joining me now is David Berson. He's chief economist with Fannie Mae in Washington.

David, good to see you.

DAVID BERSON, CHIEF ECONOMIST, FANNIE MAE: Good to be here, Gerri.

WILLIS: All right, how can these two numbers coexist? On the one hand, new home sales plummeting, existing home sales rising.

BERSON: Well, a lot of the reason is that they're -- even though they're both for February, they're representing different months' worth of activity.

Existing home sales get counted when you close on the loan.

WILLIS: Right.

BERSON: So February sale actually was activity in January as people went out and bought a home in January, closing on it in February. Whereas the new home sales are when you sign a contract to buy the house. So the new home that sold in February is actually...

WILLIS: All right...

BERSON: ... activity in February.

WILLIS: ... well, so are you telling me that the market completely turned around inside of two months? Or is there something else going on here?

BERSON: Well, in fact, the market did turn around a lot, because in January, we had the warmest winter -- warmest month for a January this century. And the weather was pretty good in much of the country. So people went out and looked for homes.

WILLIS: OK.

BERSON: In February, we had much normal weather. We had a blizzard in the Northeast...

WILLIS: All right, but...

BERSON: ... and part of it is...

WILLIS: ... so you attribute it to good weather. We have good weather really helps the market. And obviously, February, not so great, so the market was worse.

You know, I was reading through some of your notes. I see you believe that home sales are going to decline seven to 10 percent this year. That's sort of in line with what a lot of people say. But the good news in your report is that you see interest rates pretty much capping out right here. Mortgage rates, you say, will not be higher by the end of the year. Tell me a little bit about that.

BERSON: Well, the most important thing that determines interest rates is the market's expectations of inflation. And with the Fed having tightened so much, and with core inflation remaining low, the market doesn't expect inflation to move up. So there's really nowhere for long-term rates to go but basically where they are right now.

WILLIS: Well, that's very good news. David Berson, thanks for joining us today.

BERSON: Good to be here.

WILLIS: With such a volatile housing market, we'll continue our tour across the country. This morning, we're going to take you to Southern California.

Peter Viles has the story from Orange County.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): We went to Newport Beach, California, with what turned out to be a really stupid question, which is, What kind of house would a million dollars buy around here?

STEVE HIGH, COLDWELL BANKER PREVIEWS INTERNATIONAL: I would say that we probably moved above the million dollar mark about a year and a half to two years ago. Today in Newport Beach, we don't have any single-family homes in that price category.

VILES: So OK, we asked, what is the low end in this market? This 1,500 square foot house, about two miles from the beach, is listed at $1.29 million. This one just down the block just sold for $1.39 million. And this one, in the same neighborhood, was just listed at $1.44 million.

One factor behind those prices, scarcity of undeveloped land.

HIGH: We are in, almost entirely built out at this point, close to 85 percent of our land is built out.

VILES: While other regions have seen construction booms, it's the opposite, a lack of new housing, that has made coastal Southern California one of the hottest real estate markets in America.

STEVE AGILAR, BOARDWALK REALTY: There's not a lot of land. I mean, it kind of is what it is here. If you want a house, there's only so many houses, and there's only so many on the market, and it's supply and demand.

VILES: Another factor, years of skyrocketing prices have convinced some homebuyers that housing prices will only go higher, which helps explain why a third of all California mortgages were interest-only loans.

ED LEAMER, UCLA ANDERSON FORECAST: A momentum investors looks over at the -- looks at the appreciation last year and the year before, and he sees 15 percent or maybe 20 percent in some markets. And he figures, That's normal. And what does it matter if I pay a million dollars for a home if it's going to be worth $1.2 million in a year?

VILES: That said, the market is cooling off. Median price of a single-family home in all of Orange County was $617,000 in February. That's up 11 percent in the past year. But the number of houses sold declined by seven percent, and homes are sitting on the market longer. Economists G.U. Krueger says prices have gotten so high, there's a standoff between buyers and sellers.

G.U. KRUEGER, ECONOMIST, IHP CAPITAL PARTNERS INC.: The buyers, they want a certain price, and the sellers, they don't want to sell at the price the buyers wanted. So the buyers don't buy, and the sellers don't sell.

(END VIDEOTAPE)

VILES: Now, one word of caution about the local economy here in Southern California. It is strong, but it is not so strong that it justifies or supports housing prices at these levels.

And another troubling factor here, the strongest sector of the regional economy here, Gerri, is housing itself, construction, renovation, and financing of new homes. So that is something to watch, Gerri.

WILLIS: Well, that's not too encouraging, I would say, for the market. But you got to tell me, if the economy is not that strong, where is all the money coming from for these million-dollar houses?

VILES: Sure, not everybody who buys a million-dollar house takes out a million-dollar mortgage, although you can get a million-dollar mortgage with no money down in this market. Real estate professionals tell me a lot of the money is coming from baby boomers who have owned homes in this market for a long time and are sitting on huge growth in equity, hundreds of thousands of dollars they've built up by owning a home. They take that money, it's not such a stretch to get into a million-dollar home...

WILLIS: Wow.

VILES: ... if you come into it with $600,000 in equity.

WILLIS: So the cycle is just feeding on itself, it sounds like.

You got to tell me, you know, this is a market that saw price declines in the early '90s. Could it happen again?

VILES: Well, it certainly could happen. And some of the pessimists here are saying we are going to see modest price declines. But the real fallout that we had in the early '90s was tied very specifically to the loss of tens of thousands of aerospace jobs. And the economy doesn't appear to have a big chunk of jobs at risk that would force people to sell their homes into a weak market. The only risk there, though, is if this real estate economy itself unwinds.

WILLIS: Peter Viles, great report. Thank you for that.

VILES: Sure. My pleasure.

WILLIS: Next week, I'm taking off for south Florida. It's been one of the hottest condo markets for years. But are prices set to collapse from Miami to Palm Beach? Find out next week on OPEN HOUSE.

Coming up on this program, though, we'll show you why a bunch of Americans prefer the good life in Mexico, and how to make that happen for you.

And the best of times in the Hamptons. Unless you're ready to dish out top dollars for a house like this -- look at that, amazing -- we'll show you how to get the best and most affordable rental deals this summer.

But first, your "Tip of the Day."

(BEGIN VIDEO CLIP)

WILLIS (voice-over): Planning an open house? Staging your home properly is key to enticing buyers.

Clean your home thoroughly, including carpeting and any major appliances that will be sold along with your house.

Make any necessary repairs, like fixing leaky faucets.

Get rid of clutter on countertops and closets, or on windowsills.

Painting the walls white will help potential buyers visualize themselves in the home.

Your home should have a pleasant smell, so open the windows and let fresh air in.

And don't forget the landscaping. Mow the lawn and trim the hedges.

Take the time to stage your home effectively.

And that's your "Tip of the Day."

(END VIDEO CLIP)

(COMMERCIAL BREAK)

WILLIS: Are you looking for your home in the sun? Many Americans are making the move south of the border, buying homes in the central Mexican city of San Miguel.

(BEGIN VIDEOTAPE)

WARREN HARDY, WARREN HARDY SPANISH: Life is easy here, life is healthy here. The quality of life that we enjoy here is superior to anything I've ever seen anywhere else in my world -- in the world, wherever we have traveled.

WILLIS (voice-over): Home prices in San Miguel aren't cheep, but you will get more for your dollar than in many comparable American resort communities. Plus, American real estate agents right in town make it easy to buy a home here.

CAMIE SANDS, SIMPLY SAN MIGUEL: I'm not sure that you're going to find it a very different process. You're going to be meeting with your real estate agent and a real estate lawyer.

One of the main differences is that here, we have a subset of a lawyer called the notario, and he is the person, or she is the person, who is legally responsible to register your house with the Mexican government, to register it, and to make sure that you have free and clear title.

And a foreign resident living in Mexico has all the legal rights of ownership that a Mexican citizen has. Where I lived in Tacoma, Washington, I paid $600 a month for a home, my taxes to the city and state. And here, the annual taxes on houses range from, believe it or not, $150 a year to maybe $1,000 a year.

WILLIS: It might be an old city, but San Miguel has all the modern services. With satellite TV and free Wi-Fi Internet in the town square, many younger Americans are finding they can work from San Miguel while staying connected to the U.S. You can even keep your U.S. phone number.

KATHERINE HIBBERTS, PREMIER HOUSE RENTALS: There's quite a group of 30-somethings that are coming here, and they're starting all sorts of different businesses, from -- there are a lot of graphic designers that are coming down here, computer tech people. One of my good friends is starting a vineyard here.

So you have a virtual office here. You don't necessarily have to be -- it's just like in the States, you know, you don't have to be in the office anymore. And why not be here and enjoy this environment?

WILLIS: They call themselves gringos, and thousands live here. Many meet their fellow ex-pats in Warren Hardy's Spanish class, where he teaches more than just language.

HARDY: Let's just go through this, class.

In Mexico, the number one value of this society is personal dignity, and so I think you have to begin to respect all people. There are only about six basic sentences you need to know. It's more of an attitude of respect for all people. That is core to this society, which is different than in most. And so it's easy for Americans or foreigners to integrate here, because Mexicans do respect all people.

(END VIDEOTAPE)

WILLIS: Wow, that looks amazing.

Now, Mexico might be close, but many Americans are moving even further abroad.

Here to talk about that is David Mishonski. He's an expert in international property ownership and CEO of Coldwell Banker Hunt Kennedy.

Welcome.

DAVID MISHONSKI, CEO, COLDWELL BANKER HUNT KENNEDY: Thank you.

WILLIS: Great to see you.

That looks so attractive, living overseas, enjoying it. But from what I've read, the rules can be completely different. Is that true?

MISHONSKI: They are, Gerri. And you've got to be careful about this new

WILLIS: From what I've read, the rules can be completely different.

MISHONSKI: They are. And you've got to be careful this new phenomena, which is really one of the great new trends of the 21st century, and that is, of people moving abroad to retire, and to live, because the world's so much smaller. But...

WILLIS: Well, let's get to some of those rules, because we were just talking about Mexico a minute ago. You told me people who live there cannot hold title to their property if they're living at the beach.

MISHONSKI: That is absolutely the case. The Mexican constitution prohibits somebody, a foreigner, from buying any property or land within 50 meters of the ocean. And, of course, that's where everybody wants to be.

WILLIS: So what do they do?

MISHONSKI: In Mexico, the government has actually created a way around its own rules. They've created something called a fidicomos (ph), which is a bank trust, where you set up a trust at a bank, the bank takes title, you're the beneficiary.

WILLIS: All right. Let's talk about maybe Tuscany, France, Spain. A lot of people want to go to Europe, but the rules are different there as well. And let's talk a little bit about finances, because financing these properties is very different than here too.

MISHONSKI: It is, it is. The European rule, of course, is to pay all cash for real estate, and that's very different from the way we think of it. Financing is certainly creeping its way in, but every country's going to have a little bit of a different type of financing available to you. And as a foreigner, you may very well not be able to get financing. WILLIS: I hear all the time, too, that you sort of have to grease some palms to get by when you're overseas. Is that true?

MISHONSKI: It's true. You know, in the United States, we don't necessarily view that as something that we do. But this is more of a gift, nature of a gift...

WILLIS: A bribe.

MISHONSKI: ... overseas. It's something that helps...

WILLIS: It's a bribe, right?

MISHONSKI: ... grease the wheels. We would call it a bribe. Overseas, it would be called a gift.

WILLIS: OK, and how much would that be, $50, $5,000? How much are we talking about?

MISHONSKI: It could range from anywhere from $50 to $500, depending upon what you're doing.

WILLIS: OK, well, as an American, though, I would think there would be places to go that people would not welcome me. Are there certain places to stay away from? And are there places where it's just simply illegal to own property?

MISHONSKI: Yes, for instance, one of the most flagrant examples is Switzerland. It would be impossible for you, as an American, to buy property in Switzerland. If you were wanting to buy in Poland, for instance, you could buy, but you'd have to get a permit, take you about six to eight weeks to get that.

In the Czechoslovakia, in the Czech Republic, you would have to now set up a corporation. You have to have a corporation, a Czech...

WILLIS: Wow.

MISHONSKI: ... corporation. Could be 100 percent owned by somebody outside, in order to buy.

WILLIS: I've heard also in Eastern Europe that keeping clear title to land is also difficult, because people can could come in and say, My family owned this before World War II, we should have it again. Is that an issue?

MISHONSKI: It is an issue, and it's something else you've got to worry about. Title in this country, a title insurance, we have title companies. It's taken for granted that you can get good, clear record marketable title here.

In Eastern Europe, that's simply not the case. There are tens of thousands of cases winding their way through the court...

WILLIS: Wow.

MISHONSKI: ... trying to clear up old claims for property...

WILLIS: All right...

MISHONSKI: ... so you've got to be careful.

WILLIS: ... words of wisdom and a little warning. David, thank you for joining us.

MISHONSKI: Delighted. Thank you.

WILLIS: Next, we'll turn to renting, summer rentals in this country. Don't you wonder who puts down hundreds of thousands of dollars for a little retreat like this? We did. But more importantly, we're going to learn how to find the best summer deals in your price range.

That's coming up right after your mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: Hey, we've got some really great information about summer rentals and smart deals.

But first, before we go there, a little real estate eye candy.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Just three hours from New York, wealthy families spend their summers in the Hamptons. You can rent a summer house here too, but it'll cost you.

This brand-new oceanfront home comes fully furnished with five bedrooms, a media room, and a swimming pool. It's $180,000 for just the month of August.

If contemporary is not your style, this 200-year-old estate was completely restored, right down to the antique furniture and family headstones. These farm-style guest homes offer privacy and space for family and friends for a cool $450,000 for the summer.

Nautical enthusiasts might like this private villa on a bay. For $230,000, you can enjoy picturesque sunsets and your own personal dock all summer long.

And finally, a home fit for the stars, celebrities like David Letterman and Calvin Klein have stayed in this beautiful beach home. It could be yours this summer for $375,000.

(END VIDEOTAPE)

WILLIS: With prices like those, you might think you can't afford a summer rental, but you can. We've got some great ideas.

Here is Christine Karpinski from Cyberrentals.com. She knows the hot spots.

Christine, good to see you.

CHRISTINE KARPINSKI, CYBERRENTALS.COM: Thanks for having me.

WILLIS: All right, let's go out West to Palm Desert and a little town called La Quinta to talk about rentals there. What's sort of the price range for a week that I'd see in that area if I wanted to rent there?

KARPINSKI: Well, the average price is La Quinta is around $1,500 to $1,700 a week. And you can find properties in the high-end range, of course. And the average high-end property rents for about $5,000 a week.

WILLIS: And we're seeing some pictures of them right now. Now, the attractions around there, there's a lot of golf. What else do people typically do in that area?

KARPINSKI: Well, it's a nice refuge from the big city. A lot of people come from L.A. and San Diego. It's only a two-hour drive. There's balloon rides, there's beautiful topography there. It's, you know, it's the Palm Desert area ...

(CROSSTALK)

WILLIS: Isn't that where the Joshua Tree National Park is?

KARPINSKI: Absolutely. And a lot of climbing there. Even if you don't climb, people like to even just go and watch the climbers.

WILLIS: And, you know, obviously, very affordable here. And we're showing sort of the midrange, $1,500 to $1,700. But you can also upgrade to $5,000 a week. And for that, you get a lot, right?

KARPINSKI: Oh, absolutely. And, you know, they're really nice places. A lot of them are fully -- most of them are fully equipped with kitchens and, you know, barbecue grills, off-street parking, all those sorts of things. Many properties are directly on the golf course, a lot of them have private or semiprivate pools. Great area...

WILLIS: Nice.

KARPINSKI: ... to go and...

WILLIS: Nice.

KARPINSKI: ... get away from the big city.

WILLIS: And very close to Palm Springs, another popular destination.

All right, let's go to the East Coast, to Cape Cod. We have some properties in Provincetown. Now, this is a very charming little town right along the ocean, it's a very active gay community there, very diverse. Let's talk a little bit about how much you would pay there. Now, it's a little more expensive than what we were talking about before. How much?

KARPINSKI: Cape Cod is a little bit more. It's around $2,000 a week to rent a property. And you can find properties in the higher range of $5,000. And, of course, in that area, you can find properties all the way up into the $15,000, $20,000, $30,000 a week.

WILLIS: And, of course, this draws people from all over the East Coast, really, Boston, Philly, New Jersey, people from all over the place. And the prices really pretty decent there. You get a lot for your money.

KARPINSKI: Yes, and one of the things that you want to look at when you're looking at properties in Provincetown is, if you're going to stay in town, make sure that it has parking, because the parking in Provincetown is really difficult. So staying in a private home, typically you'll get some good off-street parking.

WILLIS: And the traffic is terrible there, as I recall.

KARPINSKI: Yes, it is, it's pretty bad. But you can, you know, take the ferry over. And really, it's a walking town. You don't even...

WILLIS: All right...

KARPINSKI: ... necessarily have to use your car.

WILLIS: Christine Karpinski, thanks so much for joining us today.

KARPINSKI: And thanks for having me.

WILLIS: OK, so it's almost tax time. And for some of you, tax time means refund time. When we return, my tips on what not to do with your tax dollars.

(COMMERCIAL BREAK)

WILLIS: OK, so you're getting ready for that big, fat tax refund, right? Well, so are marketers. And they're doing their best to give you some ideas on how to spend that cash.

But don't be tempted by the gimmicks. Tax prep company Jackson Hewitt is offering to put your refund on a prepaid cash card, but you'll pay $30 for the privilege.

Even car dealerships, get this, are offering to do your taxes and funnel your refund into a down payment on a car. The fee there, $225.

Remember, you can download software on the IRS's Web site and do your own taxes free.

We want to hear from you. Send us your comments, your questions to openhouse@CNN.com. And you'll find more on today's guests and topics on our Web site, CNNMONEY.com/openhouse. Before we let you go, an amazing story that gives new meaning to a house on the go. Price tag for the house, $1. Price tag for this move, $100,000. New neighborhood some three miles away, priceless.

Just a little background here. A car dealership bought the land where the house used to be and was going to tear it down. That's when the Maryland couple stepped in, grabbed it, and, well, trucked it off to the new site.

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.

(COMMERCIAL BREAK)

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