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Open House

The Bursting Bubble; Trips That Can Change Your Life; Preparing Your Garden for Spring

Aired September 30, 2006 - 09:31   ET

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


GERRI WILLIS, CNN ANCHOR: The housing market suffers another setback. Find out what the experts think you should do.
And learn about trips that can change your life. And find out how to get a raise right now.

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

1995 seems like a long time ago, but that's when 11 years ago home sales fell. That is, until this week. Depending on who you listen to, 2006 could be a bump in the road for the housing market or it could be the start of something much worse. And for folks trying to sell their homes the news can't get any worse.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Kate and Hans Koning have been trying to sell their eastern Connecticut house for nearly a year. So far there are no takers, even though they cut their price not once, but twice.

KATE KONING, HOMEOWNER: I started at $875,000, and at the time I thought that was really a reasonable price for the house, given the size.

WILLIS: The Konings are not alone. Sellers across the country are struggling with a weakening housing market. Just how weak became apparent Monday when the National Association of Realtors released its monthly housing report showing that median prices for homes fell for the first time in 11 years. Although the tumble was small, just two percent, it represents a turning point for a market that has been on fire for the past decade.

DAVID LEREAH, NATIONAL ASSN. OF REALTORS: The housing markets just went through a very big boom. We need a correction. Prices got too high and now we need prices to come down to bring people back into the buying marketplace.

WILLIS: Back into the buying market so prices can go up again. But some say a rebound won't be that easy this time. Economist Robert Shiller correctly predicted the dot com bust of the late 90's. Now he says its housing's turn.

ROBERT SHILLER, AUTHOR, "IRRATIONAL EXUBERANCE": If the U.S. housing market really starts to decline, it will harm confidence and it will cause a possibility of downward momentum in the U.S. WILLIS: And that means pain for some homeowners.

SHILLER: The people who bought in at the top and sell out at the bottom can get really hurt. And so there will be bankruptcies, foreclosures, and people out of jobs, but we'll recover from it. And this is not nuclear war.

WILLIS: Even Lereah who had previously been optimistic says prices are headed down for a while. Most at risk are places with big backlogs of homes and already high prices like southern Florida, southern California, Nevada and Washington, D.C. Some say recovery will be months in the future. Others say it could be years. For the Konings, it can't come soon enough.

KONING: I don't know how long this is going to go and how, you know -- I mean, I may have to just decide not to go anywhere.

(END VIDEOTAPE)

WILLIS: Trying to figure out the future of the real estate market can be like reading tea leaves. Frank Nothaft is the chief economist for Freddie Mac. And Dean Baker is the co-director of the Center for Economic Policy and Research.

It's great to have the two of you here.

Let's go right to the question that I know every homeowner has after this week. How low can this go?

Let's start with you, Frank.

FRANK NOTHAFT, CHIEF ECONOMIST, FREDDIE MAC: Well, there's no question we are seeing considerable weakness in the housing market compared to a year ago. For instance, housing starts are down 20 percent, home sales are down about 10, 12 percent from a year ago, and we've seen marked slowdown in house price growth. In many markets, prices are coming down.

WILLIS: But Frank, where is it going? Where are prices specifically going? How low?

NOTHAFT: Well, I think we're going to see the market kind of bottom out in the first half of 2007 and then we'll see some pickup in housing activity. And a very bright sign over the last two months is the fact that mortgage rates have come down about a half a percentage point.

WILLIS: Absolutely true.

Let's get Dean Baker in here for a second, because I know he disagrees a little bit with you.

Dean, how bad is this going to get?

DEAN BAKER, CENTER FOR POLICY & RESEARCH: Well, the answer is terms of how low it can go is how high did it get? And historically -- Bob Shiller (ph), you interviewed earlier, has looked back as far as the 19th century and has found that house prices pretty much track the overall rate of inflation.

We had this extraordinary run-up which he and I...

WILLIS: Right.

BAKER: ... have called a bubble over the last nine years, where house prices increased by 50 percent above the rate of inflation. If you just look at the trend path, the answer at how low can it go, well, the trend is a 30 percent drop in prices.

WILLIS: Oh, my goodness. Are you saying that prices are going to drop 30 percent?

BAKER: I think that's a ballpark number. And in some places, the places where we have had the biggest run-up, the Gulf Coast of Florida, parts of California, you might see drops as much as 40, 50 percent. Those are, in effect, the dot-coms of the real estate bubble.

WILLIS: And how long does this go on for, Dean?

BAKER: Well, a lot will depend on the path of interest rates. You know, in the case of the stock market, it took over two years to fully deflate. It could take even longer with the housing market.

On the other hand, if mortgage rates continue to rise -- they've fallen recently -- but if they go back up again, then we'll see prices adjust much more quickly.

WILLIS: OK. Rates matter, obviously, but let's talk a little bit about the broader impact.

What happens to the economy, Frank?

NOTHAFT: Well, the economy is going to grow more slowly because housing has been such an important propellant to economic growth in 2001 through 2005. In our projection going forward, we see the slowdown in the housing market subtracting approximately one percentage point in an annualized right from GDP growth in the second half of this year.

WILLIS: OK. All right.

Let's go to Dean.

Dean, do we have a recession?

BAKER: I think it's very likely, because the housing sector itself is over six percentage GDP much larger if you add in ancillary industries. But on top of that, people have been borrowing like crazy against their homes.

WILLIS: Right. BAKER: They took out over $700 billion in equity from their homes last year. And they're losing their ability to do that. We have a record low ratio of equity to value, really an astounding thing given the run-up in home prices and also the demographics.

WILLIS: OK. All right.

We can debate the economics all day long, but let's get to some real advice for people out there. Let's start with people who want to sell.

Should they wait and see if the market gets better, Frank?

NOTHAFT: Well, it certainly helps that mortgage rates have come down lower because that makes it easier for those families who are potential home buyers to afford to buy a home. And mortgage rates have come down about a half a percentage point for fixed rate product the last two months. The average rate now, a 30-year fixed rate loan, is about 6.3 percent nationwide.

WILLIS: Does that mean you wait?

NOTHAFT: Well, that means it will bring more potential buyers into the marketplace now, because it will be easier to afford.

WILLIS: OK.

Dean, what do you think?

BAKER: Well, I don't see the prospects getting any better. And the downturn in mortgage rates that Frank mentions is an important point. I wouldn't bet on it staying there. So, in that sense, you know, people can get a lower -- buyers can get a lower mortgage rate today than they are likely to be able to get six months from now.

So I would say the prospects don't look good today, but they are likely to look much worse six months or a year down the road.

WILLIS: OK. We don't have much more time and I want to get you to a couple other scenarios here.

What if you have an adjustable rate mortgage? Is it time to refinance? What do you do, Frank?

NOTHAFT: Well, if you have an adjustable rate mortgage where you are looking at a payment reset which could be very hefty -- many of these loans may have an increase of 50 to 100 percent in the monthly payment when they reset -- if you're in had that situation, this is an excellent time to refinance. And either lock in a fixed rate loan at a relatively low rate, or maybe get another hybrid ARM, where you can lock in the payment for a number of years.

WILLIS: Dean, I want to get you to a different topic here. Is now the time to do the kitchen renovation, or do I have to wait for that, too? BAKER: Well, if you are happy about your house and it's a place you're going to live in, you can get a home equity loan at a very low interest rate. The caution I make is, don't expect that your house price is just going to naturally appreciate. House prices have run up a lot, and they don't keep going up forever. And if you are in one of these bubble areas, D.C., Boston, southern California, a long list that, you know, we know pretty well, don't expect that it's going to be worth a lot more five years or 10 years from now.

WILLIS: You know, Frank, one thing you have suggested is that people tap their equity and invest in other places.

NOTHAFT: Yes, that's right. And in fact, that's what people have been doing very much the last couple of years.

They have been tapping into their home equity, cashing it out, either by placing a second loan -- a HELOC, or doing a cash-out refine with the first mortgage. And then they either invest the funds back into the home to home improvements, or they invest the moneys in other types of assets, such as the stock market or fixed income assets.

WILLIS: OK.

NOTHAFT: And that's a good way to diversify your investments.

WILLIS: A good way to diversify. It sounds like buying on credit cards.

But we appreciate both of you being here today.

Frank, Dean, thanks for joining me.

NOTHAFT: Thanks, Gerri.

BAKER: Thanks for having me on.

WILLIS: Coming up on OPEN HOUSE, get a raise now. We'll have important tips on how to bring home that extra cash.

Plus, you will learn all about the trips that can change your life.

And why the fall is the perfect time to get your garden ready for spring.

But first, your "Tip of the Day."

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Finding the right real estate agent is key when you're putting all your assets on the line. Experts suggest interviewing at least three agents before you sign on for the ride.

Ask about expertise, references, and the projected gamed plan. Look for an agent who works full time and who's been practicing for at least two years. And remember, personality counts for something. You're going to be working closely with this person.

A good place to start is the National Association of Realtors Web site. There you'll find a list of certified agents in your area. Another great source is the National Association of Exclusive Buyers Agents at naeba.org.

Finally, if you like to check up on your broker's track record, head to homethinking.com.

And that's your tip of the day.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: With all this talk of falling home prices and years of a downturn on the housing market, maybe you should get away. Maybe you should take that vacation, the trip that can change your life.

Jennifer Cole is with "Travel & Leisure" magazine.

Jennifer, welcome.

JENNIFER COLE, "TRAVEL & LEISURE": Hi. Thanks.

WILLIS: You know, I think a lot of people feel like they have taken a trip that changed their life but they didn't do it on purpose. You say you can actually plan a trip that will change your life.

COLE: You can plan a trip that will change your life because travel speaks just to the transformative nature of an individual, things that can open your eyes and open your mind to new experiences.

WILLIS: All right. You say, for example, you can come home with a new skill.

COLE: Exactly. Become an expert. There's tons of trips all over the world now where you can go away, learn a new skill.

WILLIS: I want to learn to cook.

COLE: Learning to cook -- Artisans of Leisure has many trips all around the world. One of them is a nine-day trip in Thailand, start in Bangkok, you go up north to Chiang Mai. You stay in luxury accommodations, the Sukhothai in Bangkok, the Four Seasons in Chiang Mai.

WILLIS: That sounds expensive.

COLE: Well, it starts at $4900 per person, double occupancy, but it is nine days, and you are visiting the markets, the chefs, you're learning the intricacies of Thai cuisine. You are also getting to visit cultural sites that are significant. So it's really getting into the culture and becoming an expert with the food.

WILLIS: Food and anything works for me. OK.

COLE: Exactly.

WILLIS: So let's talk about the possibility of really getting involved with a culture, living the culture.

Can you do that as well?

COLE: You can do that. In the Gobi Desert in Mongolia, the Three Camel Lodge has traditional nomadic gers which are lattice wood structures covered with felt. And you can stay in these gers and they're completely eco-friendly. Solar panels...

WILLIS: Wow.

COLE: ... heated with a wooden stove. While you are there...

WILLIS: So you're sort of roughing it.

COLE: You're roughing it, but it's a little bit luxurious. It's not exactly how the tribes stay. So, there is running water and there are -- there is heating and amenities. But you can go on camel treks, you can go digging for dinosaurs with a paleontologist.

WILLIS: Wow. Ride horseback, no doubt.

COLE: Ride horseback, and really get a sense of what the nomadic life is like.

WILLIS: So living the life of a nomad, that sounds like fun.

OK. You say you can also live over the water and that will change you as well.

COLE: Absolutely. Living over the water, over out on bungalows. There are houses, cabanas built on stilts, and it's the aquatic world right at your feet.

So, you go out in the morning, you are immediately in the water and can go swimming. The fish swim right up to you. In Bora Bora, French Polynesia, at the Bora Bora Lagoon Resort and Spa, it's these thatch Polynesian huts with panels where you can actually look through, see the fish swimming underneath, and feed them right from your bedroom. You know, it's sort of like...

(CROSSTALK)

WILLIS: You are in the ocean all the time.

COLE: You are in the ocean all the time. And that is far away.

However, there is more -- a closer option in Bermuda that just opened, the 9 Beaches Resort. It's more affordable, it's under $300 a night. JetBlue flies there.

So, you are right there, you get to experience this life-changing opportunity. And you don't have to go too far from home to get it.

WILLIS: Oh, that sounds great.

You know, a lot of my friends volunteer, and they love to give back, and that's a great vacation, too.

COLE: Well, this is a no-brainer, because any time that you are giving back to someone else's life or helping change someone else's life, it's going to have a lasting impact on your own. And Habitat for Humanity has programs all over the U.S. and also internationally.

A recent one that's still ongoing is, ever since Katrina hit the Mississippi and Louisiana Gulf Coast, you can -- people can go down, people are going down, helping rebuild the communities, taking out debris. And in addition to giving something back to the community, you are also getting an intimate look at that local culture, because you're living with the people who you are helping. And you are -- they are welcoming you into their homes and into their lives.

WILLIS: Big payback there, absolutely.

COLE: Exactly.

WILLIS: And particularly for New Orleans. I think a lot of people have done that already. Are there other places that you might volunteer as well?

COLE: You can -- basically, anywhere in the U.S. And habitat.org is their Web site. They have trips.

Even if you want to go -- they have women build-only trips. So if you want to go with a group of your women and help impoverished or, you know, disadvantaged women get back on their feet.

WILLIS: Jennifer, thank you so much for helping us out today.

COLE: Thank you.

WILLIS: I love that idea. We will take a vacation that changes our lives.

Straight ahead on OPEN HOUSE, we'll tell you how to increase your chances of getting a raise.

Plus, as we head into fall, time to think about next spring. We will tell you everything you need to know about fall gardening in our "Weekend Project."

But first the mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: OK. You may think of fall as the end of gardening season, but it is the perfect time to lay the groundwork for the spring.

Roger Cook from "This Old House" shows us what steps we can take now to get our back yards ready for the next season.

(BEGIN VIDEOTAPE)

ROGER COOK, "THIS OLD HOUSE": Let's get started.

WILLIS: All right.

COOK: What we're going to do is pull back on the handle. I'm going to start it up for you. Take your time.

WILLIS (voice-over): The key to a great fall lawn, the right cut.

COOK: It's going to take a lot of these leaves off the lawn.

WILLIS (on camera): So I'm not going to have to rake them up.

COOK: Some of them. But by keeping it short, the leaves can actually bow across your lawn and keep on going to the neighbor's.

WILLIS: To the neighbor's house. That's a great idea.

(voice-over): Another trick for a greener pasture, the right hardware.

COOK: There's no bag and there's no side discharge. This is a mulching lawnmower. What happens is, there's a special blade in there that circulates the grass clippings, cuts them into really tiny pieces, and they fall back onto the lawn.

WILLIS (on camera): You can't even see them.

COOK: No, but it nourishes the lawn and it saves you from taking something else to the dump.

WILLIS (voice-over): Fall is also a great time to patch up those bare spots.

COOK: Now, with the lawn cut short, we can come in with an iron rake and loosen this up. Then we're going to top dress it with compost and seed it.

WILLIS (on camera): Now, is there anything to know about the kind of material we are choosing here?

COOK: If you smell compost...

WILLIS: Yes.

COOK: ... it shouldn't smell at all.

WILLIS: Yes, this doesn't have any odor.

COOK: Nope. That's says it's a good finished product and will help our seed get started.

WILLIS (voice-over): Use the backside of the rake to spread the compost, apply fertilizer and a final layer of seed.

COOK: Go heavy on the seed because some of it doesn't germinate, the birds get some. So I always add extra just to be safe.

WILLIS: Then mix it up all up.

COOK: All you're going to do is go -- see how that...

WILLIS (on camera): Yes.

COOK: ... see how what was white before is now dark? That means most of that seed is covered. OK?

So I just want you to go along, sort of make like an X, back and forth, work your way so I don't see all that white seed on top again.

WILLIS (voice-over): When it comes to flowers, choose perennials.

COOK: This is a plant I really love for fall. This is Sedum "Autumn Joy." Almost cactus-like, succulent leaves on it. But it has these beautiful flowers. They will turn brown, and I leave them in the garden all winter long for winter interest.

So I'm going to have you dig a hole right there.

WILLIS: Loosen up the root system before putting the plant in the ground.

COOK: Now, what that does is it makes the roots grow out into the adjoining soil, rather than just go around in a circle and stay in one place. So the plant will be bigger and healthier.

WILLIS (voice-over): For a punch of color, add mums.

COOK: There's nothing I enjoy better than mums, and to complement it we have even brought in some kale.

WILLIS (on camera): Ooh, I love that.

COOK: Which is this is a cabbage-like plant.

WILLIS: This is the kale.

COOK: This will last almost all winter long like that.

WILLIS (voice-over): And when spring comes around there's something else to look forward to, daffodils and crocuses.

COOK: Look at that bulb.

WILLIS (on camera): OK.

COOK: Inside that bulb is enough energy to produce a perfect flower next spring. All we've got to do is get those roots to grow. WILLIS (voice-over): For spacing, follow instructions. For the depth, the rule of thumb is two and a half times the diameter of the bulb. And don't forget it's always pointy side up.

(on camera): Pointy side up.

COOK: Right.

WILLIS: Because it's going to grow this way?

COOK: That's going to be the flower. Those are going to be to roots. Cover those up.

WILLIS: There we go.

COOK: OK. Now, one more treat. I want to do a little decorating at the front door.

WILLIS (voice-over): The right cut, the right hardware and technique, combined with the right plants, when it comes to fall gardening, a little can grow a long way.

(END VIDEOTAPE)

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

And speaking of past weekend projects, a couple of notes about last week. Bob Vila showing us how to clean gutters.

Frank from St. Joseph, Missouri, wrote in to remind us that you should only climb a ladder if you have experience doing so. It can be dangerous and even deadly if you don't know what you're doing.

On a lighter note, Bruce from Las Vegas e-mailed us with a great tip. He says that using an empty two liter soda bottle just like this one is a great way to scoop the muck out of gutters.

Keep those e-mails coming.

Straight ahead, the housing market may be down, but find out how to get your salary up.

Tips on getting a raise, that's next on OPEN HOUSE.

(COMMERCIAL BREAK)

WILLIS: Median income -- that's wages -- fell half a percent last year, which means getting a raise is about as hard as it's ever been. The most important step and one of the hardest things to do is asking for that raise. But before you do, here are some things to keep in mind.

Lay a good foundation. Basic things like punctuality, attitude, professionalism won't be enough to score a raise, but not having them will definitely be a roadblock.

Control the conversation. Don't surprise your boss in the hallway. Set up a meeting ahead of time so everybody is prepared.

If your company has a formal process, then use it.

Make a good case. Remember, it's not enough to need a raise. You've got to deserve one.

Arm yourself with a document detailing how well you have performed.

And cope with rejection. If the answer is no, don't give up. According to careerbuilder.com only 1 percent of people who ask get a raise immediately. So, remember, you are starting a conversation.

Finally, don't be defensive. It drives your boss nuts and you're less likely to get good feedback. So take a deep breath and listen.

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 thanks you for spending part of your Saturday with us.

OPEN HOUSE will be next week right here on CNN. And you can always catch us on "Headline News" every Saturday and Sunday at 5:30 p.m. Eastern Time.

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

Have a great weekend.

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