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Open House
Housing Troubles; Rating Your Mortgage; The High Life
Aired October 07, 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: OK. So it's not a soft landing for the housing market. Even the Fed chairman calls it a substantial correction. But there is a silver lining: lower mortgage rates. I'll show you step by step exactly how to take advantage of interest rates right now.
So get out a pencil and paper. A refi "how to" is coming up.
Good morning, everyone. I'm Gerri Willis. And this is OPEN HOUSE.
The housing market is going to get much worse before it gets better. That's the finding of a new and disturbing report out this week.
Mark Zandi is chief economist at MoodysEconomy.com. He wrote the report.
Mark, I've got to tell you, I looked at this report. It is really disturbing. You talk about 100 markets going down. This isn't a correction. It's a crash.
MARK ZANDI, MOODYSECONOMY.COM: Well, I think that's a little overstatement, Gerri. I mean, I think it's a correction in most of these markets, about 100 MSAs, and there are 379 across the country going to experience measurable price declines. But this comes after a number of years of very strong house price growth. So in that context, it's going to be painful, but I think we'll move through it.
WILLIS: Lots of pain, according to your report. Very worrisome. In fact, you say 20 markets will experience double-digit declines.
Where are these problems the worst?
ZANDI: Well, they're on the west coast of Florida, from Sarasota down to Naples; Washington, D.C., particularly the Virginia suburbs of D.C.; Detroit, Vegas, parts of southern California and the central valley.
WILLIS: OK. So we're talking lots of Florida markets, second home markets. California, which has been on fire a long time.
What's the cause of what looks to be a market in disintegration?
ZANDI: A couple of things. One is a collapse in housing affordability. Because of the surging housing values over the past five, 10 years, combined with higher interest rates, it's just crushed the ability of first time homebuyers to get into this market. So that's one reason.
And the other is the flipper. Short-term investors infected (ph) many of these second and vacation home markets. And now they're running for the proverbial door. So that's weighing heavily on the market as well.
WILLIS: And what about interest rates here? You say in your report that that's one of the major causes of the problems. The Fed now on notice that housing markets are having their troubles. Can they bail us out here?
ZANDI: I don't think that they will. I think interest rates are going to remain roughly stable. They have come down a little bit over the last few weeks, but broadly speaking I think this is what we should expect to see over the next couple of years. And to some degree, the Federal Reserve has worked to slow growth by raising interest rates, and at the cost of weaker housing markets. And some of this is by design.
WILLIS: You say that this isn't as bad as it looks at first blush. So that's -- let's explain that just a little bit. Some markets, of course, have seen gains of 100 percent, 150 percent. And now a decline of maybe 20 or 5 percent just isn't as meaningful, right?
ZANDI: Yes, that's an excellent point. Of those 100 metropolitan areas that we expect to experience price declines, many of them have seen prices double over the last five years. So even if they come down, 5, 10, in some of the worst cases 15, 20 percent, many homeowners, particularly those that bought in more than a couple of years ago, are still much wealthier today than they were just a few years ago.
WILLIS: How long does this last? You mention a couple of years. But could we be on the hook for a longer period of price declines?
ZANDI: Well, of course we could. But I think the most likely scenario is that the downturn will last another year, and then the market will remain flat for another year after that. So, all told, this correction, because it began a year ago, will be three years in length.
WILLIS: Three years in length. That's going to be a long time, particularly for people out there with adjustable rate mortgages who are really struggling out there.
Is there any silver lining in your forecast?
ZANDI: Well, you know, I think one silver lining is that ultimately, with the weakening in pricing, affordability will return. And the first time home buyer can then get back into the market. Moreover, I think it's absolutely necessary that the froth in the market is wrung out of it, that the flippers leave, because that does harm to the market in the longer run.
So these excesses that have built up are getting worked off. And ultimately, that -- that's a good thing.
WILLIS: Hey, Mark, thank you so much for your help today. I appreciate it.
ZANDI: Thank you.
WILLIS: OK. Despite forecasts that prices will fall, they remain high in many markets. And that, of course, puts a strain on homeowners' budgets.
And although lenders typically require that housing costs are no more than 28 percent of income, reality these days is far, far different. In fact, Census Bureau figures show high home prices and flat incomes, as you can see right here, have pushed many households well past that mark. More than a third of homeowners spent a bigger chunk than that on housing costs last year, and that is an increase of more than 7 percent in the past five years.
OK. So, news bad for home prices, but there is a silver lining this week, as we said. Mortgage rates are down. So is now the time to take advantage of low, low rates?
Here to help us with some answers is Greg McBride.
Let's talk a little bit about these interest rates and where they're going. You know, I know people out there are really frightened, particularly if you've got an adjustable rate mortgage.
Is now the time to jump?
GREG MCBRIDE, BANKRATE.COM: Well, now is the time to start looking at this. If you have an adjustable rate mortgage and you expect a reset to come either later this year or in the first part of '07, the time to act is now.
Get out your loan paperwork. There's a specific document you're looking for. Actually, two different documents that have either the name of "adjustable rate note" or "adjustable rate rider". The importance of these documents is it really spells out the specifics, Gerri, of when that rate is going to change and how it's determined.
So here are the points you want to look for.
WILLIS: OK, Greg. So let's just repeat that. Adjustable rate note and?
MCBRIDE: Adjustable rate rider.
WILLIS: OK.
MCBRIDE: Those are two separate documents but they contain the same information.
WILLIS: OK. Perfect.
MCBRIDE: You want to look for, what's your current interest rate? What's the date that that rate is scheduled to reset? What are the index and margin used to calculate that rate? And finally, what are the periodic caps that might limit how much that rate is going to increase?
WILLIS: And, of course, Greg, you say you need to be doing this even if your rate isn't expiring for another three, four, five months, because rates are obviously moving right now. So that's step number one.
Step number two, I kind of have to decide is it worth the cost of refinancing. How do I do that?
MCBRIDE: Absolutely. Well, we have a calculator at bankrate.com that will help you evaluate the cost of refinancing versus the savings so you can determine what your break-even period is. I mean, the long story short, you want to make sure you're going to be in the home long enough to recoup those costs of refinancing.
WILLIS: Absolutely. And as complicated -- and I've got to tell you, these online calculators, you don't do the math, the machine does it for you. It's awesome.
But everybody I know is getting letters in the mail from lenders offering them really great rates right now. Should I pick up one of those and take advantage of, you know, these pie in the sky offers?
MCBRIDE: Well, it does pay to shop around. But I think the better way to go here is go online, do some searches, look for competitive rate quotes. We have a free search engine at bankrate.com where you can do that.
A lot of the letters that you get in the mail are gleaned from public records. They can be very outdated, and no matter how official that envelope or letter may look, it's not an offer of credit. It's just marketing material geared to get you to call and apply.
WILLIS: All right. OK.
Your best guess, do I go real world or do I get a loan on the Internet?
MCBRIDE: Well, I mean, again, I don't think -- the Internet is merely your shopping tool. The fact is that lenders are licensed not just in local neighborhoods, but they're licensed to do business in multiple states.
As a consumer, you want to make sure you're getting the best deal. And that means shopping around.
Call both your current lender, as well as make application with two different lenders. You want to then compare terms among all three of those to make sure you're getting the best deal.
WILLIS: Greg McBride, thank you so much.
MCBRIDE: Thank you, Gerri. WILLIS: OK. We've got much more ahead on OPEN HOUSE.
Up next, living the high life. Silver screen star Val Kilmer takes a tour of his life in a tree. You've got to check that out.
And you'll learn different ways to conserve water in your home. It can make a big difference in your bank account.
But first, "Trendspotting".
(BEGIN VIDEOTAPE)
WILLIS (voice-over): Welcome to the electronic home of the year, according to "Electronic House" magazine.
First stop, the bedroom.
(on camera): So this is your bedroom?
UNIDENTIFIED MALE: Yes.
WILLIS: Where's the TV?
UNIDENTIFIED MALE: This panel controls everything in the apartment.
WILLIS: Holy guacamole.
OK. So, Mark (ph), what's your favorite feature here?
UNIDENTIFIED MALE: Well, I think the coolest thing in this room is the lighting. This is LED lighting, which can control lighter, solid colors, rainbows, you name it.
WILLIS: It's even connected in the bathroom. Look at this.
UNIDENTIFIED MALE: OK. Now, in here you can actually put on television.
WILLIS: So you can sit on the john and watch TV?
UNIDENTIFIED MALE: Absolutely.
WILLIS: My husband may love that.
(voice-over): So what's the price tag for all this? A mere $100,000.
And that's this week's "Trendspotting".
(COMMERCIAL BREAK)
WILLIS: OK. So where do you think movie star Val Kilmer goes when he needs a break? Not to the spa. Not to a resort. Or even a villa in Tuscany. Val Kilmer likes to unwind in a tree.
Take a look.
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE, "BATMAN": Bruce Wayne...
WILLIS (voice-over): From "Batman"...
VAL KILMER, ACTOR, "ICEMAN": You're everyone's problem.
WILLIS: ... to "Iceman," Jim Morrison, Val Kilmer's career has been bright lights and red carpets. But it's when he gets away from it all that he feels most at home.
KILMER: As soon as you get in, you see every adult just immediately start smiling. It's just fun to be in a tree.
WILLIS: No million-dollar mansion for Kilmer. He escapes to a 300-square-foot treehouse tucked into a tiny corner of his 6,000 acre New Mexico ranch.
KILMER: Yes. I mean, I lived in New York for 10 years and loved it. But I think once you find out what you really want, it's important to live where you pray the best, where you're the healthiest.
WILLIS: For Kilmer, this project was a labor of love.
KILMER: I put every darn nail in this treehouse. It's all built with screws. You see, that's my little contribution.
WILLIS: The real genius behind this design, treehouse designer Roderick Romero, who has built above-ground hideaways for Sting and Donna Karan.
RODERICK ROMERO, TREEHOUSE DESIGNER: I got a phone call and it was Val, and he says, "Hey, I want to have you out to New Mexico. Are you interested in coming?" And I said, "Absolutely."
KILMER: Roderick would nod and smile and pretend to consider my ideas, and then he just did what he wanted.
WILLIS: What he wanted was a natural design built to complement its surroundings.
ROMERO: Nature is the architect, and we're just trying to figure out how to work within it.
WILLIS: Within it and with it.
ROMERO: This actual treehouse is 100 percent reclaimed, all salvaged from various areas within five miles of this exact site. So that's what makes it look like -- like the structure has been here forever.
KILMER: Go ahead, Minnie (ph). Go ahead. Just to share this land and the wilderness and the wildlife with my children is a priceless experience. I just saw a coyote hopping through this tall grass. Not hopping. What do they do? Pronking (ph), almost. Just like this every six or eight feet, and it's just -- it's strangely satisfying.
WILLIS: Kilmer's love for nature, particularly trees, has deep roots. His second cousin, Joyce Kilmer, wrote the famous poem "Trees" in 1913.
KILMER: "I think that I shall never see a poem as lovely as a tree."
So it's in the blood, the treehouse.
(END VIDEOTAPE)
WILLIS: So what's next for Val Kilmer? Well, in New Mexico, pursuing green living on his ranch. And in Hollywood, he's got a new movie coming out called "Deja Vu" next month.
And you've got to see one other thing. Val has the biggest goat we have ever seen. Say hi to Tommy. He weighs 300 pounds. Of course the camera probably adds a few pounds.
Anybody for Jenny Craig?
Straight ahead on OPEN HOUSE, living your life watered down. We'll show you how to save water and money in "Weekend Project".
And how Harry Connick, Jr. and Branford Marsalis are helping to build homes for New Orleans' musicians.
That story when we come right back.
(COMMERCIAL BREAK)
WILLIS: Welcome back.
Wasting water isn't good for anybody. It's bad for the environment and, of course, it's bad for your wallet. But there is such a thing as water efficiency without sacrificing water pressure.
Ed Del Grande from HGTVPRO.com is here to help us save water and save money.
I'm very excited. OK. Here's my problem, though, Ed...
ED DEL GRANDE, HOST, HGTVPRO.COM: OK.
WILLIS: ... you know all these new rules?
DEL GRANDE: Yes.
WILLIS: You can't take a shower anymore. It's like standing out in the rain. I mean, you want that really strong shower flow. DEL GRANDE: Gerri, you're not alone. It's not people's imagination. Everything runs slower in our houses because the regulations have come into effect. For instance, toilets can only use 1.6 gallons or less, faucets can only use about a gallon and a half a minute, and showers, our beautiful showers, are down to two and a half gallons a minute.
WILLIS: All right. Well, let's talk about showers first...
DEL GRANDE: OK.
WILLIS: ... because that's what I'm really concerned about.
DEL GRANDE: Yes.
WILLIS: How do I get a really good shower head?
DEL GRANDE: Well, remember, it has to adhere to those rules on the two and a half gallons, which is a little slower. But there are shower heads like this on the market.
This is called a performance head. And this gives you the impression that you're getting a stronger shower with less water. Can I tell you the tricks?
WILLIS: Sure.
DEL GRANDE: OK. First of all, see how wide it is, like a fire hose? Well, with that wider stream it feels like there's more water coming at you.
WILLIS: Even though there's not.
DEL GRANDE: Even though there's not. So it's kind of a mind game. But inside it's real.
This is great. Look at this. Do you see it looks like a jet engine?
WILLIS: Yes.
DEL GRANDE: Yes. It injects air through the water. So even with a small amount of water it feels stronger coming at you.
WILLIS: So it's pushing it through at you.
DEL GRANDE: Yes. At you.
WILLIS: OK.
DEL GRANDE: But the best thing is, Gerri, feel these little nubs over here. Feel that over here. See how they're rubber?
WILLIS: Yes.
DEL GRANDE: The little spokes... WILLIS: What does that do?
DEL GRANDE: Well, OK, here's the trick. If you keep these spokes clean, you get a good, strong shower. Water deposits get in normal shower heads. They block up. But look, if you wipe your thumb across it -- go ahead, don't be shy.
WILLIS: Yes.
DEL GRANDE: This squeezes the water out. And if there's no water in those little nubs, it can't leave deposits. So you always get a strong shower.
WILLIS: Pretty good.
DEL GRANDE: Not bad, huh?
WILLIS: Pretty good. OK. Let's talk about faucets. What can I do there?
DEL GRANDE: OK, faucets. Here's the spout right here at this faucet. It could be a kitchen faucet, it could be a bathroom faucet like this one.
What you want to do is take off the standard aerator. Now, that's what...
WILLIS: The standard aerator.
DEL GRANDE: Yes. See how it opened up the spout now?
Now, do you see how small that one is? Look, you can increase it to a jet aerator just like the shower head. Inside is jet propulsion.
WILLIS: OK. Ed. Ed, Ed, Ed, what does this do? It's an aerator? What does that mean?
DEL GRANDE: It mixes air with the water so it gives you a softer flow. So it's not a big, strong stream.
WILLIS: Oh.
DEL GRANDE: So, if you mix more air -- and see these slots? Do you see the one you have? There's no slots. So this one mixes twice the air. So it looks like a much stronger flow even though it's the same amount of water.
WILLIS: Very tricky. Very tricky.
DEL GRANDE: They look -- well, here's what's not tricky, Gerri. Look how fast I just changed that out. Anyone can do this in a matter of seconds.
WILLIS: Are they expensive?
DEL GRANDE: No. You can go down -- they sell them in six-packs, believe it or not. You get six aerators in a pack and you just go and change all your faucets. And hopefully you won't have over six in your house. And it's a great project.
WILLIS: What about outdoor faucets?
DEL GRANDE: OK. Outdoor faucets, very good. Let me show you something right here. You can hold the new one.
WILLIS: This looks familiar.
DEL GRANDE: Yes. Now, this is the real familiar one. This is the old standard one.
WILLIS: Yes.
DEL GRANDE: Yes. Now, see how it's big and fat? Look at that one. See how it's skinny?
WILLIS: Is that going to fit, though?
DEL GRANDE: Well, that will fit. But what they've done is they put wall mount technology in here, so it makes it flow faster. And you can actually have a thinner spoke.
And let me mix these two right together here. See how that one is smaller? So with a third less water you'll still get the same flow. How about that?
WILLIS: OK. We've got to -- we've got to say the "T" word. We've got to talk about toilets. So...
DEL GRANDE: We saved the best for last.
All right. The new technology is with these toilets that are called dual flushing toilets.
WILLIS: What does that mean?
DEL GRANDE: Well, they look the same from the outside, but on top of the toilet or the side, you'll have two buttons. Now, I'm going to be polite about this. The number one button is for number one, the number two button is for number two.
WILLIS: OK.
DEL GRANDE: So here's how you go. Inside it will active these two buttons on the top. You'll have the chrome ones on the outside. So when you press the chrome ones, do you see this? The number one button will lift up this plunger. And that only gives you one gallon to flush.
WILLIS: So this is just controlling the water.
DEL GRANDE: Right. What you're doing is now you're controlling the water, so you get your water saving with the one gallon, but if you need that big flush, under 1.6, you push the number two button, and that will give you a strong flush.
And Gerri, this tower will save up to 5,000 gallons of water a year just with that feature. So this is no joke.
WILLIS: Wow. That's great.
DEL GRANDE: Yes.
WILLIS: OK. I was laughing, but in fact it's a very serious technology.
DEL GRANDE: Yes, it is.
WILLIS: Great to see you, Ed. Thanks so much.
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 at CNN.com/openhouse.
Still ahead, music to the ears of New Orleans musicians. We'll take you to a new village built just for them.
But first your mortgage numbers.
(COMMERCIAL BREAK)
WILLIS: You can say musicians make up the heart and soul of New Orleans. But after Katrina, many musicians were without homes, unable to afford the steep, post-storm rents. That's when the idea of a new village came in, a new village where musicians could own a home of their own.
(BEGIN VIDEOTAPE)
WILLIS (voice-over): It's a sultry night in the French Quarter, and Ray's Room is alive with the sound of New Orleans.
Ellen Smith knows what it means to miss New Orleans. She grew up here. She learned to love music here. And she left here before Hurricane Katrina.
Slowly the music started returning to New Orleans. Ellen and her daughter returned, too, to a friend's home, a temporary arrangement. Like many New Orleans musicians, Ellen still has trouble finding work. The city's music scene isn't fully recovered. So getting just one or two gigs a week could be a struggle.
ELLEN SMITH, NEW ORLEANS JAZZ SINGER: If I had to rent a place in New Orleans right now, that would be all that I could do. You know, because rent for a one bedroom apartment in New Orleans is $900 a month.
WILLIS: Ellen wasn't the only one worrying about the fate of musicians in New Orleans. Harry Connick, Jr. and Branford Marsalis grew up here. They know what music means to the city and they came up with an idea to save it: a musician's village. JIM PATE, NEW ORLEANS HABITAT FOR HUMANITY: They saw the Diaspora of all of our incredible musicians and they thought we can't lose that in New Orleans. So they came up with the concept of creating a housing project, especially for musicians.
WILLIS: It would let musicians by a new three bedroom home at a cost of only $500 to $600 a month.
UNIDENTIFIED FEMALE: This is my house.
WILLIS: Habitat for Humanity plans to build 75 houses here, and a community center named for Jazz great Ellis Marsalis. About half the homeowners will be musicians. And the community center will give them a place to play and a place to teach a new generation.
UNIDENTIFIED FEMALE: Yes, baby. That's what I was talking about. Yes!
WILLIS: Habitat says it's had about 20,000 volunteers in the city and millions in donations from companies and civic groups. That's a lot of people helping and hoping this village gets the city's musicians back on stage.
SMITH: It's just so important that we keep it alive. We have so many original New Orleans jazz musicians in the city. And we need to bring the city back.
WILLIS: Bringing the city back one house at a time, one jazz club at a time, one musician at a time.
(END VIDEOTAPE)
WILLIS: It's great to see people getting back on their feet there.
As always, we thank you for spending part of your Saturday with us.
OPEN HOUSE will be back next week right here on CNN. And you can also catch us on "Headline News" every Saturday and Sunday at 5:30 p.m. Eastern Time.
Your top stories are next in the "CNN NEWSROOM". Have a great weekend.
(COMMERCIAL BREAK)
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