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Open House

Home Prices Out of Control, Interest Rates Rising Fast; Tips For Backyard Bash

Aired July 01, 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: Home prices are out of control. Interest rates are rising fast. We'll tell you the right money moves for you right now.
Plus, how to have the perfect barbecue without breaking the bank.

Good morning, everyone. I'm Gerri Willis, and this is OPEN HOUSE.

You may hear about the slowing housing market, but don't tell that to the folks living in 30 major markets around the country. They've seen their median home price more than double in the past six years. That means high prices in a softening market and homes that are out of reach for many Americans.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): It just keeps getting more expensive to buy a home. In most of the country, home prices are still rising and mortgage rates keep climbing higher.

Thursday, the Federal Reserve raised interest rates for the 17th straight time. That is going to send mortgage rates above the four- year highs they are at now and take even more steam out of the real estate market. But cooling the market down won't help you buy a home in a major city.

High prices and high rates have made affordability a big problem. In many areas, the cost of buying a home has more than doubled since 2000.

In Baltimore, prices are up 125 percent. The Miami-Fort Lauderdale area is up 175 percent. San Diego is up 142 percent.

In seven American cities, an average home now costs more than $500,000. In Manhattan, it's over a million.

There are now a record number of homes on the market, and that means the balance of power is shifting from sellers to buyers. But a softening housing market doesn't mean prices are going to fall. Existing home prices in May were still up six percent from last year.

(END VIDEOTAPE)

WILLIS: Time now to break it all down and help you figure out what you need to do. Mark Zandi of MoodysEconomy.com and Greg McBride of BankRate.com will help us make sense of it all.

Welcome to both of you.

MARK ZANDI, MOODYSECONOMY.COM: Thank you.

GREG MCBRIDE, BANKRATE.COM: Thank you, Gerri.

WILLIS: Mark, I want to start with you.

Seventeen rate hikes and mortgage rates up two full percentage points. When are these guys at the Federal Reserve going to stop?

ZANDI: Soon. I think soon. I think we've got one more rate hike left in August. They'll push the funds rate up to 5.5 percent.

I think fix mixed mortgage rates will peak near 7 percent. But I think that will be it. I think we're getting close to the end here, thank goodness.

WILLIS: Thank goodness is right.

So, Greg, what's the effect on the housing market?

MCBRIDE: Well, these higher mortgage rates that Mark referenced are having an impact on the market. You're seeing adjustable rate mortgages where you're experiencing very pronounced increases in payments. Somebody that borrowed $200,000 three years ago on a three- year adjustable rate mortgage, it's time for that first adjustment now, and that payment can go up more than $430 a month.

WILLIS: That's a -- that's a very big deal.

MCBRIDE: That definitely has an impact.

WILLIS: Absolutely.

Mark, I want to turn to you for just a second, though. I know the Federal Reserve wants to cool the housing market down, but could they end up sending it into a dive?

ZANDI: Well, that's a risk. As affordability weakens and as short-term investors exit the market, the psychology could shift very rapidly and we could see sales come off more than anticipated and prices actually start to decline. So it clearly is a risk. I think it's still a low risk, but it's one that's measurable.

WILLIS: Greg, who's most at risk?

MCBRIDE: The -- those that are most at risk are bowers that maybe they gambled a few years ago. They took one of the exotic loans, or even a traditional adjustable rate mortgage. Now it's time to pay the piper.

The rates are going up. The payments are going up. If their budget doesn't have room to absorb that, that's going to cause a problem.

Another instance where somebody is in trouble, if they borrowed every last nickel of equity that they had in that home, interest rates have gone up. They don't have much of a cushion in the event that they decide, hey, look, it's time to sell and downsize to something else.

WILLIS: Right.

MCBRIDE: They can't do that if they don't have the equity.

WILLIS: And Greg, so many people out there using their homes as a piggybank.

Mark, I want to ask you about an issue I know you're worried about. It's the credit issues out there. More people in foreclosures now, a lot of people worried about people at the margins.

What do you think?

ZANDI: Yes. I think it's a concern as interest rates rise and the housing market cools, and house prices will decline in certain markets. And I do think it will put pressure on new home buyers, that those took down interest-only mortgages or negative AM loans. And I do think we will see credit quality erode, we'll see delinquency rise, foreclosure rates begin to rise.

And it's something we need to watch very carefully. Certainly, it's going to be very painful for the people involved, and in some circumstances it could become a broader economic problem.

WILLIS: Wow.

So, Greg, let's talk a little bit specifically about what people can do. If you have one of those loans that, you know, has a rate that's adjusting, an adjustable rate mortgage, or an interest-only mortgage, what should you be doing right now?

MCBRIDE: Now is the time to refinance into a fixed-rate loan. The fixed rates have crept up here in the past few weeks and are knocking on the door of 7 percent right now, but that 7 percent is still lower than what you'll pay if you hold on to that adjustable rate or interest-only loan too long.

Bite the bullet, take that payment increase now, but lock in a fixed rate and a fixed monthly payment going forward.

WILLIS: OF course, it's not free to refi, right? You're going to have costs.

MCBRIDE: You're going to have costs. And -- but, again, those costs can pay you back if you're able to lock in a payment and a rate right now that's very attractive and saves you further headaches down the road when that adjustable rate mortgage goes to something like 7.75.

WILLIS: All right.

Mark, you know, one of the things that's fueled the economy has been this incredible and this insatiable demand for fixing up your house. And a lot of people have financed that with cheap money, with HELOCs, home equity lines of credit, second mortgages. A lot of people now sitting on those loans thinking, boy, what should I do?

Is this a broader problem?

ZANDI: Yes. I think many people who have borrowed aggressively and don't have much equity in their home, yes, they have an issue. And I do think it's wise if they can to refinance.

But if you can't, and increasingly people won't able to because interest rates are too high, I think it's important to realize that you need to be very forthright with your lender. If you start running into difficulty making your payments, don't wait. Call the lender immediately, and try to work something out. And often -- in most cases, lenders will try to work with you.

WILLIS: Good advice.

Greg, what if, though, you really do want to have the new kitchen or add a bath or something? What's the best way to do that now? How should you get a loan?

MCBRIDE: Well, if you're in the market to refinance your first mortgage, maybe you're getting out of that adjustable rate, then taking something additional cash out at a low fixed rate is attractive. But, if you already have a low fixed-rate mortgage, leave it alone.

A home equity line of credit, even though interest rates are rising, still offers a lot of flexibility in terms of being able to borrow the money when you need it, borrow more if you need it later. The ability to dial down your payments if -- in those months when income is a little bit tight. That offers a lot of flexibility to someone who's doing a home improvement job.

WILLIS: Great.

MCBRIDE: I think it's a little bit different if you're buying a big-ticket item like a car. Then you may want to go with the fixed rate.

WILLIS: Mark, quickly, I just want to ask you, what's your outlook for interest rates for the end of the year?

ZANDI: Well, I think short-term rates go up another quarter point and I think fixed mortgage rates peak out at 7. Roughly another quarter, 50 basis points.

WILLIS: All right.

Bad news, but you guys are making the best of it.

Mark Zandi, Greg McBride, thanks for joining me.

ZANDI: Thank you.

MCBRIDE: Thank you, Gerri.

WILLIS: Coming up on OPEN HOUSE, everything you need to know about bug-proofing your home.

Then we're talking burgers, how to have the perfect Fourth of July barbecue for less.

And then fuse control. You'll learn how to keep the whole family safe around fireworks this holiday week.

But first, your "Tip of the Day."

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Folks across America are celebrating the Fourth of July this weekend. That means plenty of outdoor activities and an increased risk of sunburn. Most sun damage is done before the age of 18, and the risk of cancer grows with every burn.

Your best defense is to follow the ABCs of the American Academy of Dermatology. Stay away or indoors between 10:00 a.m. and 3:00 p.m. Block the sun's rays using an SPF 15 or higher sunscreen. Use one ounce over your entire body -- that's about a shot glass worth -- every two hours.

And remember, cover up using protective clothing. The average T- shirt only gives you the protective equivalence of SPF 5 sunscreen.

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

(COMMERCIAL BREAK)

WILLIS: A holiday weekend is the perfect time to throw a backyard party, but we're not talking about the same old-same old.

Christopher Lowell is here to show us some new and creative ways to host a stunning party.

Now, Christopher, you say I can have a fabulous party and have fun myself.

CHRISTOPHER LOWELL, AUTHOR, "THE HASSLE-FREE HOST": That's the whole thing. One of the things that we say is, if it can't be done the day before the party, absolutely don't do it. Because the day of the party, your control freakness is going to kick in, you're suddenly going to walk through your house and say, "I forgot about that. I forgot about that. I forgot about that."

WILLIS: I'm all about the do-aheads. What kinds of things can you do before?

LOWELL: Well, first of all, one of the things that we're seeing -- you know, in this generation, we have to entertain differently than our parents did, otherwise we will be so uncool. Today, people don't care where the food came from. They really don't.

WILLIS: Are you sure?

LOWELL: Absolutely.

WILLIS: Because you say that the guests should include Duncan Hines and all this prefab stuff. I mean, pre-mixes?

LOWELL: Certainly.

WILLIS: It seems like cheating.

LOWELL: Certainly for people whose whole big thing is, I want to cook for you, different ballgame.

This book is really about those people who will never have anybody over to their home, you know. And today, you know, we're online all the time and we think we're talking to people, but we really need face time now.

We just did a pilot for a series based on this book and we actually ordered Chinese food, set an incredible table. Everybody ordered what they wanted, it showered up in 15 minutes, it was transferred into these gorgeous bowls and it looked terrific.

Because here's the deal: no one is going to remember the food. They're going to remember the conversation that they had. And if the only thing you're remembering is the food and you're freaked out, and you and whoever you're hosting the party with are at odds with each other, the guests are going to get the willies and, you know, they're going to want to leave early.

WILLIS: Definitely get the willies.

OK, Christopher. Let me -- let me stop you here, because one of the big issues is the hassle factor.

LOWELL: Yes.

WILLIS: I can't help it. Whenever I throw a dinner party, I always get so nervous and I'm always thinking, do I have enough serving spoons? There's always something that you're worried about that you don't have or you wish you did.

LOWELL: But that's why we say give yourself a good full week to plan a party. You know, if you work during the day, in the evening start making your lists. And this book really kind of breaks that down. Don't go looking for your silverware the day of the party, because, you know...

WILLIS: Bad idea.

LOWELL: Blank, blank, blank happens. Fill in the blank. Do you know what I mean? And so the whole idea here is, is to try to figure out what can you really manage.

Now, one of the things that we talk about, especially where the food comes from, because that's where people seem to freak out the most, three dishes, heaping in abundance, with a lot of little extras, a nice setup bar, that's really all you need, versus a lot of fussy little dishes where there's not enough for quite everybody.

WILLIS: I've got to tell you, I have made that mistake myself, seven dishes, eight guests, what a nightmare.

LOWELL: Whoa.

WILLIS: I thought I was going to lose my mind.

LOWELL: That's pretty heavy duty.

WILLIS: But, you know, we've got to talk about saving money, because people really care about the. I don't want to break my bank just because I'm throwing a dinner party. Now, you have one really great idea that we've used right here.

LOWELL: Yes.

WILLIS: The tins are fabulous and not expensive.

LOWELL: One of the things that we try to do is we try to use the things to tablescape that you already have in your home. Who's got the money to go out and buy all new for that party? That's where your budget goes through the roof.

WILLIS: And we're looking at this right now. So, it doesn't look very impressive here.

LOWELL: No.

WILLIS: It's just a bunch of tins.

LOWELL: Just a bunch of tins. We got some of these from the Jo- Ann stores across the country. They're very -- they're in stores, very popular right now.

And the rest of them are from a nursery and a hardware store. And each one of these containers are $4 or $5 a piece.

The great thing is, when your tablescape is done, everyone has gone home. You can actually use these for something else. They all stack, they nest, they go into the garage.

WILLIS: Tablescape, very impressive wording here.

LOWELL: Tablescape, yes.

WILLIS: But it's also about saving money with the food that you choose, right?

LOWELL: That's right. Absolutely. One of the things that you want to think in terms of -- here's kind of your budget. If you're doing a formal sit-down party, for instance, you can give somebody a four-star price experience for a third of the price.

WILLIS: How do you do that?

LOWELL: Well, one of the things you want to think about is, if you start thinking about booze, which is really expensive, and the markup, and you think about wine being a markup, and you think about what that food really costs, think in terms that you're going to spend -- if you're going to have a great formal party, you're going to spend between $25 to $30 a head. If you do a buffet, which is wonderful, because people only take what they want and they leave what they don't want, then you're going to be able to get away with anywhere between -- anywhere between $10 to $12 a head, depending.

WILLIS: So you can really pick the way you're going to serve...

LOWELL: That's right.

WILLIS: ... and adjust your budget accordingly.

LOWELL: That's right.

WILLIS: Let's talk about the Fourth of July. You know, this is typically very, very informal.

LOWELL: That's right.

WILLIS: I think people get all worked up about having a very formal party.

LOWELL: That's right. And that's perfectly OK. Hotdogs and weenies, you know, it's a beautiful thing.

WILLIS: But how do you make people feel special with that?

LOWELL: I think it's all in the presentation. What we say is, spend less on the food, as long as you have a lot of it, and put the time into the presentation.

All of this that you see here can all be done a day ahead, which means you basically start with your lifts and levels. Now, that is one of the key ingredients to doing a tablescape. By putting things on lifts and levels things look more interesting.

If you go to the Four Seasons hotel and you go to one of their buffets, it's not all lined up in a row. That's called potluck. What lifts and levels do is it gets kind of things up in the air, you can actually use things from around the yard.

WILLIS: And it looks special.

LOWELL: Absolutely.

WILLIS: It looks very different.

You've got watermelon here...

LOWELL: Yes.

WILLIS: ... which I think looks really fabulous. How did you do this?

LOWELL: We actually took the watermelon, split it in half, and just take Gerber daisies and plunge them in. That's it. And if you see, it adds a lot of height. That's sort of the focal point, so your eye travels from where you need to get at the food, all the way to areas that you don't need to get to, which that would represent.

WILLIS: So, take shortcuts, make sure you make...

LOWELL: That's right.

WILLIS: ... something that's absolutely beautiful like we have here today.

LOWELL: That's right.

WILLIS: Christopher, thank you so much for being with us.

LOWELL: My pleasure.

WILLIS: Still ahead, celebrate an American tradition and keep everybody safe at the same time. We have important fireworks tips for you and your family.

And how to smoke out the bugs in your house. A weekend project shows you how to bug-proof your home.

That's coming up next.

(COMMERCIAL BREAK)

WILLIS: Is something bugging you in your home? If so, listen up.

Mice, ants, termites and other critters can be a threat to your health and to your home. In today's "Weekend Project," we'll show you how to get rid of those unwanted guests.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Sleep tight, don't let the bedbugs bite. If you think it's just an old nursery rhyme, think again. Bedbugs are becoming a nightmare in a growing number of American households.

(on camera): How am I getting them in my house?

BRENDAN GOLDBLATT, LIBERTY PEST CONTROL: A lot of times people, especially if you go shopping at one of the thrift stores, or especially if you go to yard sales, you're going to see a lot of stuff that comes in, you know, that will bring in infestations.

WILLIS (voice-over): Another common place to pick them up, hotels.

(on camera): When I'm traveling, how do I know that there are bedbugs in that hotel room?

GOLDBLATT: The best thing to do is check, especially around the mattress. Pull up the linens and you will actually see some bedbugs if there's an infestation.

WILLIS: Tell me what they look like.

GOLDBLATT: They're a fifth of an inch long, a quarter of an inch, and they're about an eighth of an inch wide. They're brownish in color, so they're very dark. But when they've fed they're actually red.

WILLIS: When we say "feed," they are little vampires. They suck your blood, right?

GOLDBLATT: Yes. They actually suck your blood.

WILLIS (voice-over): And when they do, they leave this behind, little red bite marks all over your body that will leave you inching for days.

Here's what you can do to protect yourself. Bag all linens and clothing that have been infested and wash them at 120 degrees or hotter. Vacuum regularly. Discard bags right away to prevent trapped bugs from escaping.

And when traveling, keep your clothes in your bag and keep the bag off the floor to avoid bringing home a bedbug as a souvenir.

Another common household pest, cockroaches.

(on camera): What are the first telltale signs that I may have a cockroach problem?

GOLDBLATT: Well, the best bet is to actually see one. When you see one, that means there are hundreds behind the wall.

WILLIS (voice-over): And they can pose a threat to your health.

GOLDBLATT: We have allergens that are associated with cockroaches, and people who have asthma are highly affected by it.

WILLIS: The best defense, keep your home clean and food sealed in containers. Use a caulking gun to fill up holes in your home to keep cockroaches from coming in. And keep moisture to a minimum.

GOLDBLATT: Like most pests, you know, they breed in water and they love water. So you want to make sure that you get rid of the water. WILLIS: Another thing to get rid of, that stack of firewood. It's a breeding ground for termites, so you want to keep it as far away from your home as possible.

(on camera): So, if I have termites, obviously I want to take steps right away. But to prevent them from coming in the first place, what should I be doing with my house?

GOLDBLATT: Well, the main thing is to make sure that the foundation is secure, that there is a concrete barrier in between.

WILLIS (voice-over): Termites can also find their way into your home through furniture or contractors, so make sure you inspect every piece of wood thoroughly.

Your home is also a favorite nesting place for mice and rats.

GOLDBLATT: The best thing to do is what we call rodent-proofing. It's going around basically and making sure that every single hole in the house is filled with something.

I recommend copper, because steel -- you know, a lot of people will use steel to cover things, but that rusts, and they can actually eat through that.

WILLIS (on camera): Wow.

GOLDBLATT: So, you want to use copper, copper plates, copper wool. There's a foam that can be inserted into holes, especially behind the stove, especially if you have radiators in your house. You need to make sure that those holes are completely sealed, and that will keep them out. That's the only way to do it.

WILLIS: You're grossing me out completely. OK.

GOLDBLATT: The best way to do it. I'm grossing myself out.

(END VIDEOTAPE)

WILLIS: To find out more on how you can protect your family and your home from harmful critters, log on to the National Pest Management Association at pestworld.org. Or go to the Centers for Disease Control and Prevention at cdc.gov.

As always, if you have an idea for a weekend project, send us an e-mail at openhouse@CNN.com. And you can watch past weekend projects on our Web site, CNN.com/openhouse.

Coming up next on OPEN HOUSE, add some spark to your Fourth of July weekend while staying safe. Important tips you'll want to know when we come right back.

(COMMERCIAL BREAK)

WILLIS: Safety should your number one priority this Independence Day. Check your state laws before buying any fireworks. Some states only allow novelty fireworks, like sparklers or party poppers. To get your state's guidelines, check out americanpyro.com.

Find out about local restrictions from your town's police or fire department. And make sure you go to a reputable retailer. Don't buy fireworks in brown packaging. Now, that could be a sign that the fireworks were meant for professional shows, not your Uncle Bob.

Remember that most firework injuries are a result of burns, and a big culprit here are those sparklers which burn at 2,000 degrees. Be sure to have a bucket of water on hand when you set off your fireworks.

And if you're taking the family to a professional fireworks display like this, keep some safety precautions in mind. First, try to sit about 500 feet away from the show and avoid sitting up-wind so debris and smoke don't travel toward you.

And, of course, the more professional the show is the safer it is. If you see colors that are hard to produce like deep blue and a dazzling white, chances are you're seeing a quality show.

Finally, as much as you think your little baby or Fido or Fluffy will enjoy the show, you want to keep infants and pets inside. Explosions can hurt their sensitive ears.

And if you have any questions or tips you want to share with your fellow OPEN HOUSE viewers, send us an e-mail to openhouse@CNN.com.

And you'll find more on today's guests and topics on our Web site, CNN.com/openhouse.

As always, we thank you for spending part of your Saturday with us.

OPEN HOUSE will be back next week at 9:30 a.m. Eastern right here on CNN, and you can also catch us on "Headline News," every Saturday and Sunday at 5:30 p.m. Eastern.

Don't go anywhere. Your top stories are next on CNN SATURDAY.

Have a great weekend.

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