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Open House

Taking Home Equity Loan Against Primary Residence To Buy Second Home No Longer Feasible; Manhattan Developers Use Designer Names To Sell Property; Home Gadgets Go High Tech; Making the most of small spaces

Aired April 08, 2006 - 09:30   ET

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

GERRI WILLIS, CNN ANCHOR: Good morning and welcome to OPEN HOUSE. I'm Gerri Willis.
Let's get right down to the point. Once again, we have conflicting information on the housing market. First time home buyers are getting squeezed, while those of you in the market for a second home are experiencing a surge in both prices and inventory.

So here's what I did. I went to the White House and asked President Bush what he thought.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): As expected, the president didn't offer much in the way of details about the real estate market, though he did say that more Americans owned their home than ever before, and that he considers that a sign of a healthy society.

Bush's economic advisors told us that, despite the boom, housing prices aren't out of control and have risen the most in areas where population and wages are growing.

The White House office had contacted me earlier this week with an invitation to meet the president and talk about the economy. So naturally, questions came up about Treasury Secretary John Snow, who's been rumored to be under pressure to leave.

However the president backed the treasury secretary saying that he's done, quote, "a good job."

On the economy, the president said that he doesn't get credit for the good numbers such as Friday's unemployment rate, which fell to a four-year low.

Asked about the loss of jobs in industries that have sustained the middle class, like the auto and airline sectors, Bush said, "I'm concerned when someone loses a job. It's something that really affects the family and affects that person. And I'm equally concerned about a society, which doesn't recognize that the nature of the jobs of the 21st century are changing."

(END VIDEOTAPE)

WILLIS: The White House was pretty impressive. But that's the president's second home. A growing number of us are finding that owning a second home is now within reach. In fact, the second home market is among the fastest-growing sectors, now representing a record 40 percent of sales.

Now there are a lot of reasons for that. A large chunk of the homes are investment homes. And there could be tax advantages to buying a second home. The average price, just over $200,000.

Rising interest rates will soften the market for second homes. But overall the outlook is positive as aging baby boomers are starting to retire.

But financing a second home, now that's the tricky part. Here to help is Greg McBride, senior financial analyst with bankrate.com.

Greg, great to see you.

GREG MCBRIDE, SENIOR FINANCIAL ANALYST, BANKRATE.COM: Great to see you, Gerri. Thank you.

WILLIS: How do you read these numbers? I mean, 40 percent of sales. It's unbelievable.

MCBRIDE: It is.

And the way that breaks down is about 12 percent of those sales were for vacation homes, a number that, I think, has a lot of staying power, especially with the baby boomers moving into that retirement stage. But 28 percent of sales were for investment properties and coming on the heels of the appreciation we've seen in recent years, that's worrisome. That number is quite a bit higher.

WILLIS: Well, Greg, let's talk about the wannabe out there. I know a lot of wannabes. I don't wannabe. I want a second home. But the problem is financing it. How is financing a second home different from financing your initial home?

MCBRIDE: Well, the biggest thing is that the interest deduction that you get on your primary residence is not a slam-dunk on the second home.

In fact, the IRS sets what's known as a personal-use standard. Basically, you have to use that home, the greater of, either 14 days per year or 10 percent of the amount of time you rent it.

So, for example, if you rent this place for six months out of the year, that's 180 day. Ten percent of that is 18 days. That's the threshold you would have to exceed for personal use in order to be able to deduct that interest.

WILLIS: OK, so it's really tricky. You need to obviously consult a tax professional.

How do you come up with the down payment?

MCBRIDE: Well, one of the popular trends that people have been doing in the past few years in this area of ultra-low interest rates was taking out a home equity line of credit on the principal resident and using that, either as the down payment or an outright purchase of the second home. That's...

WILLIS: That's not working now, is it?

MCBRIDE: It's not.

WILLIS: That's a bad idea with rates going up.

MCBRIDE: Well, rates have shot up. And so that's really lost a lot of that luster. The home equity lines right now are closing on 8 percent fast. That's about double the 4 percent people were paying two years ago.

WILLIS: I have to ask you, though, financing the second home, if it's an investment property, is far, far easier, right?

MCBRIDE: Well, you're going to pay a higher interest rate when it's an investment property.

Sometimes on a second home, particularly if you're making that down payment and you have full documentation, you may not see an increase in the rate. But on an investment property you certainly will. Plan on about a half a percentage point.

WILLIS: All right, Greg. Thanks so much for your time today. We'd go on and on, but we're out of time.

MCBRIDE: Thanks, Gerri.

WILLIS: Back to first homes, as we continue our real estate tour around the nation, we're looking in our own backyard.

Now, everyone knows apartments in Manhattan are expensive. But with a softening market, developers are looking to score buyers by betting on famous names.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): $1.3 million, that's the average price for an apartment in Manhattan. A three-bedroom apartment will set you back over $3 million.

Prices in Manhattan keep on rising, up seven percent in the past year. But the number of apartments on the market has jumped by 60 percent.

With so many markets, developers looking to stand out are adding designer names to their buildings. Next to the New York Stock Exchange, this former office building is art deco on the outside, Armani Casa on the inside.

MICHAEL SHVO, SHVO MARKETING: And I think the Armani Casa is something that we have here that you really can't buy from anywhere else. And any building coming on the market today, if they don't have something that they're the only ones they can offer, are going to be forced to compete on price, which there are buildings like that.

We're offering here something that really cannot be -- something that cannot be offered at any other building in the city. You're getting an Armani Casa designed building with full amenities, which would really be like staying at the Four Seasons hotel.

WILLIS (on camera): It's not home, per se. It's a product you're buying, right?

SHVO: When we look at real estate -- when we market real estate, we actually look at it as a luxury ground. We don't look at real estate as four walls, a kitchen and bathroom. People are buying an experience. They're buying a lifestyle. And the same way we're selling Armani Casa apartments, we could be selling a Mercedes or an iPod. It's the same marketing ideas.

WILLIS (voice-over): Apartments here start at $600,000. Right across the street, another office renovation and another famous designer.

Downtown by Phillip Stark has interiors by the famous designer, a rooftop park and pool with chandeliers.

LOCKHART STEELE, CURBED.COM: Well, a lot of these new sort of luxury architect buildings are being built in neighborhoods that aren't traditionally luxury neighborhoods in Manhattan.

For instance, in Astor Place in the East Village, you have the sculpture of Living Building by Charles Gwathmay. And in some cases, they don't quite fit into the neighborhood and, I think, that is what creates buzz, is they stand out by being so different.

WILLIS: But buzz doesn't always lead to sales. Even in Manhattan, designer apartments can be too expensive. And there are still plenty of for sale signs on these high-end homes.

(END VIDEOTAPE)

WILLIS: OK. For most us those buildings are way out of reach. So a little later in the program we'll show you how to make the most of a small space.

And next, the key to your home is at your fingertips. We'll show you the latest in fun gadgets for your home including, a painting to hide your plasma; TV pop-ups and lots more.

But first "Your Tip of the Day."

(BEGIN VIDEO CLIP)

WILLIS (voice-over): Keep closing costs down, title fees, appraisal fees, document preparation fees. Sealing the deal on your home can really add up. But you can curb those costs. Get a good- faith estimate. All lenders are required to give you an estimate of your closing costs within three days after you apply for the loan. And while it's no guarantee, it will give you an idea of how much you'll be expected to shell out.

Question all of the fees. Make sure you know what each item is and whether it's required. And don't be afraid to ask for reasonable cost breaks. You may be able to negotiate a better price on some items.

So get an estimate and always ask questions. That's "Your Tip of the Day."

(COMMERCIAL BREAK)

WILLIS: These days it seems like everything from your garage door to your toaster is automated. But wait until you see the second generation of gadgets and gizmos for your home.

(BEGIN VIDEOTAPE)

WILLIS: So the big question is, like, if you have one of these plasmas you don't want to see this thing the whole time so there are lots of solutions for that, right?

JIM BARRY, CONSUMER ELECTRONICS: Right. Well, we've already looked at one way to hide it in the cabinet and it can pop up or come out. So otherwise, you can disguise it right on the wall so that it looks like...

WILLIS: You've got it right here, right?

BARRY: ... art work.

WILLIS: So we make it look like a painting?

BARRY: That's the beauty of this. You can pick whatever kind of art work that you like, just as then you can pick any type of program that you'd like to watch.

WILLIS: Getting the plasma out of sight wasn't the only trend we spotted. These speakers are disguised to look like normal walls.

So the speaker's behind there.

BARRY: The speaker is -- the wall is the speaker.

WILLIS: The speaker is the wall and the wall is the speaker.

BARRY: Well, actually that's built right in and then you just paint right over it.

WILLIS: Not only do homeowners want to hide their audio and video equipment, they want it to sound better and do more things.

This system lets you listen to your music library over your home theater sound system.

BARRY: Most digital music players were designed for being listened to on headphones. And MP3s and stuff are really terrific on headphones. More and more people now are listening to them through their home sound system.

WILLIS: Having your entire media library at the fingertips sounds great, but what about your front door?

This is cool technology.

BARRY: This is cool technology to solve an old problem, locking and unlocking the door. So you program in your fingerprints or your thumb print and that will unlock the door. You can also use a thumbprint if you have an alarm system that's separate, if you have a garage door that's separate. You can do all the different fingers.

WILLIS: No more keys.

BARRY: No key, right.

WILLIS: So you can't lose the keys. You're always getting in your house.

BARRY: Exactly. Now, that is a good thing for some of us who often lose our keys.

WILLIS: Lose our keys.

(voice-over): But my favorite was this awesome home theater.

(on camera): That's pretty nice. You got any popcorn?

(END VIDEOTAPE)

WILLIS: OK. We ran out of popcorn.

But here's Brian Clark with more gadgets for your home.

Brian, good to see you.

BRIAN CLARK, Good to see you, to, Gerri.

WILLIS: You brought us lots of cool things today.

CLARK: Yes, I did. I did.

WILLIS: I'm excited about this iPod. There's iPod speakers. And there's a little sign on here in case you can't even ...

CLARK: For opening cases. Well, for the first time you use it -- I left the sticker on there for people.

This is from Altec Lansing. It's called the iM7 speaker. And I know that you've seen a lot of speakers designed specifically for the iPods. But some are them, I think, are a little bit expensive. And some are a little bulky and are not portable. You're going to sit them down, particularly the new speaker that Apple introduced, which is 350 bucks. Once you put that thing down it's not going anywhere.

This speaker fills a room with sound. It's from Altec Lansing. It's the iM7.

WILLIS: So the sound is good?

CLARK: The sound is fantastic.

WILLIS: And you can take this anywhere you want to go, right?

CLARK: You can take it anywhere you want to. It runs on four D- batteries.

WILLIS: I like it. And it's kind of groovy-looking, too, right?

CLARK: It's kind of groovy.

WILLIS: And into the iPod -- all of my music is on the iPod. So if I could hear it at home that it would be great.

Now, we've got a fancy-shmansy, massive, huge, heavy...

CLARK: This is...

WILLIS: OK, that was the negative part. All right? Now, you say the positive part.

CLARK: That's the negative. But this is a home entertainment PC from Toshiba. And this thing has a TV tuner in it. It's got a high- definition monitor in it. You can run DVD video or HD-DVD videos on here, which are coming out later this month.

You can hook it on to a projector. You can use it as a digital video recorder. You can use it as just about anything you want as far as home entertainment goes.

WILLIS: OK, here's my question for you, though, Brian.

CLARK: Yes?

WILLIS: OK, so this tiny little itty-bitty 17-inch screen -- we're going to sit with the family around this? That makes no sense.

CLARK: You don't want to sit with the family around it. What you can do actually, though, if you have a plasma monitor at home, you can plug it into the plasma monitor.

WILLIS: How much is this?

CLARK: 2400 bucks.

WILLIS: So it's a steal at $2400?

CLARK: It's a steal at 2400 buck.

WILLIS: Is that your point?

CLARK: With everything this thing comes with, if you've got a DVR, if you've got an HD-DVD player, you'd pay more on that. I guarantee that.

WILLIS: OK. And now, I'm going tell on you because -- you take this.

CLARK: I'll take this.

WILLIS: All right. So you told me earlier that you thought this was attractive?

CLARK: I think it's really cool looking.

WILLIS: Really? Only a guy would think that was attractive.

CLARK: It's very shiny. It's very shiny.

WILLIS: It is shiny. And it's made out of plastic.

CLARK: And it's made out plastic?

WILLIS: What is this thing, by the way?

CLARK: Well, now, if you're a big movie fan and you're thinking that a 40 inch plasma's nice, a 50-inch plasma's nice, but I really want the movie experience. This is the best way to go because you can blow a movie up.

WILLIS: This is a projector?

CLARK: This is a projector. But you can blow a movie up to 110 inches on your wall.

Now, we have a thing at my house with the kids...

WILLIS: So what do you do? Do you get in the back yesterday and you put a sheet over the trees or...

CLARK: No. You take it into your basement or your family room or something, you turn out the lights, close the blinds. You say to the kids it's movie night. And they come in and they have a blast. We watched "Lord of the Rings" or whatever we want to watch, "Chicken Little."

WILLIS: Oh, that sounds like fun. How much?

CLARK: It's $3,000. But this is a high-definition projector. So that's why it's a little bit more.

You can find projectors for less. But this is a high definition projector. And as we mentioned, HD-DVD, high definition DVDs, are going to start hitting the market later this month.

WILLIS: Thank you so much, Brian. We enjoyed having you.

CLARK: Thanks for having me.

WILLIS: It's not a gadget or a gimmick, but a good old-fashioned makeover. I can't wait to show you this. A tiny studio, plus a modest budget. How to make the most of a small space is the focus of our weekend project, next on OPEN HOUSE.

(COMMERCIAL BREAK)

WILLIS: Having a small apartment doesn't mean you can't think big. We decided to see if we could take a small, New York apartment and turn it into a dream home.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: So this is it.

STEPHEN SAINT-ONGE, DESIGNER: Wow, home sweet home, isn't it?

UNIDENTIFIED FEMALE: Yes.

SAINT-ONGE: Congratulations.

UNIDENTIFIED FEMALE: Thank you.

SAINT-ONGE: This is exciting. This is an interesting area. So now, how do you feel about the kitchen? I mean, honestly, your first thoughts when you first saw it?

UNIDENTIFIED FEMALE: I'm not so keen on the green countertops. This is just ugly.

I do like the kitchen space. But I think it's too big. I think it could maybe -- and you tell me if that's possible, but I think it would be enough space to cut it off here, right around this surface.

SAINT-ONGE: So for you it's really about being able to separate the spaces so that you really feel that you have different rooms within essentially what would be called the one-room apartment or a studio apartment?

UNIDENTIFIED FEMALE: Right. I do like open spaces, maybe like a half wall that can be put up and you can still look over out into the living room area.

SAINT-ONGE: Now, how do you feel about this carpeting?

UNIDENTIFIED FEMALE: I hate it.

SAINT-ONGE: Oh, this is...

UNIDENTIFIED FEMALE: Very big.

SAINT-ONGE: It's very beautiful.

I think the East Hampton beach house theme might be something that would fit in nicely in here.

UNIDENTIFIED FEMALE: I would love that. SAINT-ONGE: And I think it can be done. We're going to go shopping together and look at some options because we have a budget. And we're looking at $12,000?

UNIDENTIFIED FEMALE: Correct.

SAINT-ONGE: So that would include labor, for painting and any kind of repairs that need to be done, and then obviously any furnishing and accessories that would go into that.

UNIDENTIFIED FEMALE: Right.

SAINT-ONGE: So I've got my list from Home Depot. Why don't we actually go to the bath department now and look at fixtures, because that's going to be easy. We can check that off the list.

UNIDENTIFIED FEMALE: I love this. I have to say I really do like it. I think that's the one.

SAINT-ONGE: That's the one.

Now, from the carpet standpoint, I would go something definitely more neutral.

We've looked at tiles. We've talked about carpeting. We've talked about shower doors. We talked about mirrors.

UNIDENTIFIED FEMALE: We got everything on your list, right?

SAINT-ONGE: We got everything on the list. And we can move on to Ikea?

UNIDENTIFIED FEMALE: Yes, let's go.

SAINT-ONGE: All right. Let's do it.

What's nice about Ikea is you can actually walk through rooms and see furniture in a lifestyle environment, which is nice.

When I walked in here a second ago, I saw the piece that I think is the great starting point for the room, which is the sofa.

So take a look and see if you see one here that you think is the one that I'm drawn to.

UNIDENTIFIED FEMALE: OK. I think that's it?

SAINT-ONGE: This is it. This is the one. The chair, the ottoman, the sofa.

UNIDENTIFIED FEMALE: I love it.

SAINT-ONGE: Open shelving above your countertop. I mean, you could do something like this. And this would work really nicely into your kitchen. Just doing the stainless accepts, white dishware, white bowls. Just very clean and easy. And that has such a great look. It's very European.

This is actually a nice option for you.

UNIDENTIFIED FEMALE: I love this piece.

SAINT-ONGE: All right, well, let's get it. We'll check it off the list right now.

UNIDENTIFIED FEMALE: It's great. It really does have a lot of storage.

SAINT-ONGE: I like this kind of mirror because of the dresser that we just chose. You see great mirrors. There are so many options. This is such a great solution for making a space look bigger, is having a lot of mirrors.

Oh, here we go. Right there.

Here it is. This is perfect. This would be perfect for over your sink.

UNIDENTIFIED FEMALE: Yes.

Oh, my god.

SAINT-ONGE: Come on in. Welcome home.

UNIDENTIFIED FEMALE: Oh, wow. This is amazing. Oh, wow.

SAINT-ONGE: It came together.

UNIDENTIFIED FEMALE: It sure did. Oh, this is so beautiful. Oh, my god.

SAINT-ONGE: So you have your separate space. Because, you'll remember, the wall was back here so this was part of your living area, but having the bed hidden away. So if you go around the corner, that's where your bed is.

UNIDENTIFIED FEMALE: Oh, I absolutely love it. Oh, isn't that -- oh, that's so cute.

Oh, this is perfect. I love it.

SAINT-ONGE: And now you have your former large kitchen space. Remember this was all open before?

UNIDENTIFIED FEMALE: Yes, yes.

SAINT-ONGE: So now you have your little dining area, your home office area.

So the TV that you splurged on, as a treat to yourself, here it is, the flat screen.

And I like the idea that the TV is not mounted at this stage. But I also like the look of it. It's more casual. It's more relaxed.

UNIDENTIFIED FEMALE: Yes.

I'm speechless. It is so beautiful. It is so much more than I imagined it could be.

(END VIDEOTAPE)

WILLIS: Seriously, we're not a makeover show. But I just wanted to show you what a difference you can make with some imagination and a relatively small budget.

Plus, you can make a very big difference in energy savings this summer if you stick around for my final tips. That's coming up next on OPEN HOUSE.

(COMMERCIAL BREAK)

WILLIS: And now some good news about your electricity bill. It may not be that expensive this year according to the Energy Department.

Now, every little bit helps, of course, so here are some tips on how to cut that bill down even more.

Use kitchen appliances that are sized to the task at hand. If you're preparing a small meal think about popping it in the microwave instead of the oven. And if you're only cooking for one, use smaller pots. And of course, don't forget to drag out the crock-pot. Appliances that concentrate heat are big energy savers.

Try washing your clothes in the warm or the cold cycle of your washing machine. You don't need hot water to kill germs, anymore. That's why you have detergent. Just think, you'll be saving 80 percent on your energy.

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, CNN.com/openhouse.

And finally, $1.7 million could buy you a two-bedroom apartment at the Armani Casa building. Or you could buy an entire town in California.

Bridgeville is up for sale on eBay, sitting pretty on some 200 miles north of San Francisco. The town has a population of 20, 21 if you buy the town. The winning bid gets you three cows, eight houses and a post office. You can call yourself mayor and even rename the town.

But here's the catch, Bridgeville's been on the market before. The current owner says he's made substantial improvements since he last tried selling it. Sound familiar?

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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