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Open House

Americans Make Mistake Of Using Homes To Pay For Other Parts Of Their Lives; Andre Agassi Retired Has Whole New Game in Real Estate; Tips For A Safe House; Housing Slump Just Starting In Some Parts Of The Country

Aired October 28, 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: More bad news from the housing market this week. We'll tell you why you have less to spend on your home than ever before.
Plus, Andre Agassi has retired from tennis and has a whole new game in real estate. He'll tell us all about it.

OPEN HOUSE starts right now.

It was hard to miss the numbers this week. Home prices dropping by the largest amount on record. Existing homes fell for the sixth straight month.

But put aside those numbers right now and focus on the fact Americans are making the mistake of using their homes to pay for other parts of their lives. That's making folks in this country more house poor than ever before.

Lisa Sylvester has the story.

(BEGIN VIDEOTAPE)

LISA SYLVESTER, CNN CORRESPONDENT (voice-over): Americans have been using their home as an ATM, cashing out more than $500 billion in home equity from 2001 to 2005 to cover expenses like health costs, student debt, repairs and credit cards. That's left many middle class homeowners house poor.

In 1973, the average homeowner's equity was 68 percent. That's dropped to 55 percent today. One reason is the explosion of so-called "exotic loans" that require little or no money down.

TAMARA DRAUT, DEMOS: Interest-only loans, adjustable rate loans, no down payment options. What we know is that a lot of new homeowners are much more vulnerable than they would have been prior to the housing boom.

SYLVESTER: Interest rates have climbed. Middle class families with first and second mortgages with adjustable rates are finding that they take a bigger chunk of their paycheck.

ANN ESTES, CLEARPOINT FINANCIAL SOLUTIONS: We're seeing more clients every day that very sadly, they've gotten into a debt hole that is very difficult to dig out of. SYLVESTER: Those adjustable rate mortgages are now coming due.

BRUCE GOTTSCHALL, NEIGHBORHOOD HOUSING SVCS. OF CHICAGO: We anticipate there's going to be more and more people, the adjusting arms are getting greater and greater. We've heard that over the next 18 months or so, up to a trillion dollars of arms will be resetting.

SYLVESTER: New Census Bureau figures show that home owners across the country are spending about half of their salaries on home expenses.

(END VIDEOTAPE)

SYLVESTER: These exotic loans like interest-only loans have exploded in the last few years. In 2000 they made up only two percent of all loans. In 2006, they made up about a third of homeowner loans -- Gerri.

WILLIS: Lisa, it's a fascinating story. And you've got to ask yourself, where are the regulators?

SYLVESTER: That is an excellent question.

The Senate Banking Committee just recently -- in fact, it was just in September -- they had a hearing and they were essentially trying to find out the same thing, who's essentially watching this, and is somebody essentially asleep at the switch? Because how is it possible that they've had such an explosion of these loans with no one really paying too much attention -- Gerri.

WILLIS: Exactly. And, you know, I think the big risk here is that prices are going down. At the same time, people feel themselves saddled with these exotic loans. It seems to me the risks are higher than ever before.

SYLVESTER: It is. It's a very unfortunate thing that people today own less of their home. And part of it is because of these exotic loans, that they start off with so little equity. You know, these no money down loans. They have very little equity, or no equity in some cases.

And then the other thing that happens is that people are pulling out equity from their home to pay for consumer goods. People often talk about the so-called good debt versus bad debt, and they are using it for "bad debt," for credit cards, for instance, for consumer goods, to buy that boat, to buy that new car, to buy that flat-screen TV. And that's where people get into trouble -- Gerri.

WILLIS: Well, you bet. You know, we've seen it time and time again. When money is cheap, people use it for sometimes ridiculous things.

As you were reporting this story, what surprised you?

SYLVESTER: I think what surprised me is that how many people are doing this. How a home equity loan when interest rates were going down -- and we all know people like this, our neighbors, friends -- people saw a home equity loan as an easy way. You want to go on vacation, then you take out a home equity loan.

You know, traditionally, home equity loans were always thought of being if you wanted to improve the value of your house, if you wanted to do some type of home improvement project. But I think what surprised me is how many people were really using this as an ATM.

WILLIS: Absolutely. And it happens all the time. And a lot of people are paying the price right now.

What else did the experts tell you that was ...

(CROSSTALK)

SYLVESTER: Well, one of the things that they say in terms of advice to people, is they say don't put it off. If you are struggling, if you have one of these adjustable rate mortgages and it's clear you can get your head above water, you should seek out help. Go to one of these nonprofit credit counseling service. But the important thing is to get help and get it early -- Gerri.

WILLIS: Get it early. Great advice.

Lisa Sylvester, thank you so much for helping us today.

Coming up on OPEN HOUSE, take steps now to keep you and your family safe. Everything you need to know about the detectors you should have inside your house.

And Andre Agassi puts down the racket and takes a swing at real estate. We will talk to you about the tennis legend and his new investment.

But first, your "Tip of the Day".

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Trick-or-treating safety isn't just for the trick-or-treaters. It's up to you to make sure those little candy fiends go home without any bumps or scratches.

Make sure all walkways are well lit and clear of props. Think about using battery-powered lights instead of candles inside jack-o- lanterns. If you do use candles, make sure anything flammable like paper or cloth stays far away.

Remember, any trips or falls could become your problem. An umbrella liability policy can buy you peace of mind. A million dollars of coverage above your existing homeowner's policy costs just $150 to $300 a year.

That's your "Tip of the Day".

UNIDENTIFIED MALE: Happy Halloween!

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: After two decades on the tennis court, Andre Agassi is taking a swing at a new playing field, the real estate market.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Just two months ago, Andre Agassi tearfully said goodbye to professional tennis.

ANDRE AGASSI, TENNIS PLAYER: I have found you, and I will take you and the memory of you with me for the rest of my life.

Thank you.

(APPLAUSE)

WILLIS: And while he may have hung up his racket, he's already courting a new profession: real estate.

AGASSI: I've been spending my life sort of working hard to really affect people, you know, to give them something good in their day out there on the tennis court for a few hours. And as I've sort of grown and evolved, I started to realize that life after tennis is just going to allow me a bigger platform to sort of work your way into the fabric of people's lives and affect it on a much sort of bigger, more real-life way.

WILLIS: That real-life way includes his real-life wife and fellow tennis great, Steffi Graf. Together, they've partnered up with Bayview Financial and Exclusive Resorts to build high-end hotels and vacation resorts.

AGASSI: We started in Tamarack, Idaho, which is this sort of all-season destination resort. And we did it from scratch and poured ourselves into all the details of it. So it's a -- it's a place that is there for families that come enjoy each other, discover each other, rediscover themselves.

WILLIS: The duo is part of a growing trend of star athletes lending their names to real estate projects.

JEFF HEILBRUN, V.P., PROJECT DEVELOPMENT, DCP INTL.: I think the celebrity component gets somebody interested, but I don't necessarily think it closes the sale.

WILLIS: But Agassi insists it's not only about the couple's celebrity.

AGASSI: I think this is evolution of a lot of different things we have done. You know, we've not just put our money behind this, we've put our time, we've put our heart, we've poured ourselves into it. And we've done it to be able to turn it over to everybody who wants to come share in it. WILLIS: On the court, tenacity and desire were his trademarks. And Agassi insists these traits will also help him succeed in real estate, despite the signs of a softening market.

AGASSI: It's like worrying about your ranking on the tennis court. You know, you just take care of what's important to you and go about what you do, and do it for the right reasons, and then let it be whatever it is.

WILLIS: And with their lifestyle brand ever expanding, it looks like these two retirees are just getting started.

(END VIDEOTAPE)

WILLIS: Well, whether the couple will do as well in the real estate market as they did on the tennis court, we'll just have to wait and see. I'd bet on Andre though.

Our segment last week showing you when and how to cut commissions -- changing gears here -- got a very big reaction from the real estate agents themselves.

Genie in Carolina Beach e-mails, "I'm a realtor, and every time someone gets on national television and dumps on realtors and advises the public to do the same, it hurts people very much in my profession. I work very hard for the commissions I make."

And Lisa from Wilmington, North Carolina, writes, "I disagree with negotiating to reduce commission rates. One question I ask when I'm asked to reduce my commission is, 'What part of my services do you not want me to do?' A professional realtor spends a lot marketing a property. Advertising, phone, gas and marketing tools are very costly. I can't enjoy a single meal with my family without my phone ringing."

And Ginger from Southport, North Carolina, e-mails, "I'm a realtor and struggling to make ends meet. Children still have to be fed, gas has to be put in the car so that we can drive folks around to see houses. Most of the time I charge 7 percent because I'm worth it."

Megan from Boca Raton has a different thought. She says, "The agent who is quick to reduce their commission will also be quick to reduce the sale price of the home. It's OK to try negotiating your broker's commission, but beware of the agent who is quick to do it."

Phil in Vancouver had a completely different take. He writes, "I have sold real estate in British Columbia for 30 years. We sell for 7 percent of the first $100,000 plus 3 percent of the balance. Not too much burden on the seller, and we make a good living -- 6 percent across the board just seems to high, in my opinion."

Keep those e-mails coming to OpenHouse@CNN.com.

Straight ahead on OPEN HOUSE, be safe, not sorry this fall. What you need to know about smoke detectors, carbon monoxide detectors, easy fixes that can protect your family.

And why buying real estate right now in Las Vegas might be too much of a gamble. We'll explain when we come right back.

(COMMERCIAL BREAK)

WILLIS: It's Daylight Saving Time this weekend. And along with changing your clocks, you probably know it's also a good idea to change the batteries in your smoke directors.

Lieutenant Joseph Thomas from the New York City Fire Department is here to talk about that and some things you might not have heard about.

Lieutenant, I have heard that some people, they don't necessarily time it to this time of year, but maybe they might time it to a daughter or son's birthday. Any way that you can remember it, right?

LT. JOSEPH THOMAS, FDNY: That is correct.

WILLIS: All right.

So what else do I need to know about maintenance? For example, I think this is one of the battery-operated smoke directors, right?

THOMAS: Yes.

WILLIS: Are these hard to install and difficult to maintain?

THOMAS: Not that difficult to install. There's typically two screws that go into a wall and anchors. But the maintenance is the important thing. And that's checking it monthly, pushing the button, making sure that the alarm rings. Twice a year when we change those clocks, just be reminded that you change your batteries.

WILLIS: All right. So let's talk a little bit about where you might install it.

THOMAS: OK. Now, a smoke detector, because smoke does rise, should be up high. At least 12 inches from the ceiling. Ideally, it should be on the ceiling, but not everybody can put it on the ceiling. But if you have it on the wall, 12 inches down from the ceiling would be fine.

On the other hand, with the smoke detector -- carbon monoxide detector...

WILLIS: And which one is that?

THOMAS: That would be either one of these. This is a carbon monoxide detector.

WILLIS: All right. And they look really similar. They are hard to tell apart, so you've just got to look at the packaging, right?

THOMAS: Exactly. And these here can be placed anywhere, because carbon monoxide, as far as its weight, is the same as air. So it's equally distributed throughout the home.

Some of these detectors like the carbon monoxides have, digital readouts. So you want to have it somewhere where you can actually see it, maybe five feet off the ground. A lot of them come plug-ins.

WILLIS: It makes a lot of sense. So do these last forever? I mean, is there a lifecycle to the detectors?

THOMAS: Manufacturers recommend changing smoke detectors ever 10 years.

WILLIS: Every 10 years.

THOMAS: Ten years.

WILLIS: So it's easy to lose track of that. How can I remind myself of when I might want to make that change? Maybe just, like, if I write on the back in magic marker or something when I bought it?

THOMAS: That's an idea. That's an idea. But again, the reason for that is because some of these detectors after 10 years have -- they do fault. And that percentage is about 30 percent of them fault after 10 years.

Fifty percent after 15 years. So that's too high of a risk. So we suggest...

WILLIS: You definitely want to get rid of it.

THOMAS: ... you change them, you know, 10 years.

WILLIS: Let's talk a little bit about -- you know, I know I'm supposed to have these. I know I'm supposed to change the batteries. You told us a little bit about where to put it in the house, but where do fires typically start?

THOMAS: OK. In the home, the most common fire would be in the kitchen.

WILLIS: Right. And you know what we do? When the alarm goes off in the kitchen, I pull the batteries out because I don't want to hear it.

THOMAS: Well, that's another thing. Having -- having smoke detectors in the kitchen is not a good idea...

WILLIS: OK.

THOMAS: ... because -- well, because of that very same reason. You are going to pull the battery out. It becomes a nuisance.

Smoke alarms and also carbon monoxide alarms should be at least 10 to 15 feet away from your kitchen. Near your bedrooms, that's where you are going to need it most.

WILLIS: Is that where fires start? THOMAS: Well, the fires are going to start in the kitchen as far as the number one reason for fires. Fires do start in the bedrooms. That's -- they are usually cigarette-related, electrical-related. OK? But the alarm should be somewhere near where you sleep.

WILLIS: All right. So once this thing goes off, I mean, you know it scares you to death if it happens in the middle of the night. What is the right response?

THOMAS: OK. Number one, having the smoke detector is not enough. Having a plan is equally important.

So, knowing what to do when the alarms go off, follow your plan. So every family should be devising a plan to escape their homes at least two different ways.

And practice it. Maybe go through that twice a year.

WILLIS: All right.

Well, Lieutenant, thank you for being with us today. We appreciate it. Thank you so much.

THOMAS: My pleasure.

WILLIS: Something else to keep in mind, radon testing. Now, you may not see, smell or taste radon, but it can harm you. It's estimated that radon causes thousands of deaths in this country ever single year. And the surgeon general says that radon is the second leading cause of lung cancer next to smoking.

So, make sure you and your family are safe from radon. You can find test kits in your local hardware store.

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.

Daylight Saving Time does end this weekend. Here are some ideas to help you embrace that change.

Change your clocks on Saturday afternoon or evening instead of Sunday morning. The sooner you start thinking in terms of the new time, the sooner you'll adjust.

Reset all the clocks in your house, including your wristwatch, the microwave, the time stamp message on your telephone answering machine -- bet you didn't think of that one -- and don't forget this one, the alarm clock. Reset your car's clock, as well.

Your cell phone and your computer should automatically update the time.

Enjoy the extra hour of sleep while you can. And remember, next year you won't have to fall back until the first Sunday in November. Still ahead, the black list of real estate markets, why Tucson, Arizona, is just one of the cities you might want to stay away from next year.

But first, it's time to go "Trendspotting".

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Not since the days of "The Three Stooges"...

MOE HOWARD, ACTOR, "THREE STOOGES": What does your watch say?

SHEMP HOWARD, ACTOR, "THREE STOOGES": It don't say nothing; you've got to look at it.

WILLIS: ... have Murphy beds been so prominent.

JHOANNA ROBLEDO, "NEW YORK MAGAZINE": I think for a while Murphy beds fell out of favor because, well, frankly they didn't look that great. But these days you can get them customized any which way you want.

WILLIS: Some, of course, think of the bedroom as the sacred place and the bed as the holiest of all furniture. But for some, a bed that disappears during the day is a necessity.

ROBLEDO: Let's say you live in a studio, and in a 16 by 15 studio. That's not very much space at all. That's a little bit over 300 square feet. And a Murphy bed takes up about 30 square feet.

WILLIS: Thirty square feet by night. By day, it's up to you. Something different all together.

That's this week's "Trendspotting".

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: The housing slump is just starting in some parts of the country. And when it comes to picking a city to buy your home in, well, let's just say there are some cities you'll want to stay away from.

Paul Kaihla is with "Business 2.0" magazine.

Paul, welcome.

PAUL KAIHLA, "BUSINESS 2.0": Hi.

WILLIS: Hi there. Good to see you.

OK, tell me, what are the cities that I should stay away from?

KAIHLA: Well, I think primarily the central valley of California is very vulnerable right now. And we like to think of these real estate markets as reflections of local economic conditions. But what happened in this place was really a dynamic of the building industry...

WILLIS: What happened?

KAIHLA: ... created this housing inflation there.

In 2004, none of the major national builders were really active in the central valley, but they were looking for inventory to please the street, boost their numbers, and they couldn't get it on California's coastal markets.

WILLIS: So they started building in the valley and...

KAIHLA: Right. A half a dozen moved in, bid up prices of property. That was passed on in higher home prices.

WILLIS: Wow. You know, all those rumors about homebuilders not overbuilding, it might not be so true, right?

KAIHLA: Yes. Especially in other markets, like Phoenix and Las Vegas. We are seeing -- we are seeing the same kind of thing, of too much inventory that built up over the past two or three years. So, in Las Vegas, for example, right now there's more than 20,000 homes for sale.

WILLIS: Wow. That's unbelievable.

KAIHLA: That number two years ago was 3,000.

WILLIS: Unbelievable. You know, there was such a frenzy over homebuilding there. Is the problem not just inventory, but also the fact that, you know, they've got limitations on services there? You know, you can't even water your lawn there.

KAIHLA: Right. You know, Las Vegas always rose to the top of these rankings we saw on annual job growth, too. So the problem is on the demand side because, yes, they had job growth, but it was low-cost growth, low-wage growth.

So, when you see the Economic Policy Institute's, you know, criticism of the labor market now, calling it the wageless recovery, that's kind of what you are seeing in Las Vegas.

WILLIS: Wow.

KAIHLA: So both on the demand side it's weak, and too much supply.

WILLIS: Is the story the same in Reno and Tucson? We are talking a lot about out West. What you do see in those two cities?

KAIHLA: Yes, they're -- to me they are satellites of the bigger markets in each state. So Reno is kind of a reflection of Las Vegas. And Tucson is a reflection of Phoenix. That latter market is really interesting because they built 60,000 new homes in Phoenix last year. But population growth really only justifies 40,000 new homes.

So, basically, 40,000 homes roughly went to people who bought them and moved into them. Who bought the other 20,000? Investors, speculators, and they are now trying to dump their inventory, along with the builders, who still have lots of houses for sale.

WILLIS: All right. Paul Kaihla, thank you so much for joining us.

KAIHLA: Thank you.

WILLIS: You can 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. Make sure you join us next week for a special OPEN HOUSE election edition from Minneapolis, right here on CNN. And you can also 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 in the "CNN NEWSROOM".

Have a great weekend.

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