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Open House

Biggest Home Price Drop On Record; Serious Steps Toward Saving Money On 2006 Tax Return; Tips For Decorating Your House; Tips On Tipping This Holiday Season

Aired December 02, 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: Surprising new numbers this week, the biggest home price drop on record. And if you're selling your home, that is not good. But, if you're buying, well, you're getting a whole lot more house for the money.
We'll look into what it all means for you and your biggest investment, your home.

OPEN HOUSE starts right now.

All right. The National Association of Realtors finally admits the housing market has not bottomed out. And word of a record price drop in the selling of existing homes is unsettling to homeowners across the nation, but a bright note for first-time buyers.

Now, in October of last year, the median selling price of a home stood at $229,000, as you can see. This year, it dropped a record 3.5 percent, to $221,000. Now, this as Federal Reserve chairman Ben Bernanke speaking on the downturn of the housing market used words like "severe" and "widespread".

All of it very concerning.

Nick Retsinas is the director of the Harvard Joint Center for Housing Studies in Cambridge.

You've got to help us make sense of this, Nick. Good to see you.

NICK RETSINAS, JOINT CENTER FOR HOUSING STUDIES: Good to see you again.

WILLIS: All right. Well, you've looked at the numbers, and some of them are contradictory. What's your takeaway from what's going on?

RETSINAS: Well, you're right, the numbers are very noisy. There are lots of numbers.

For the most part, they're -- they're bad news numbers. It looks like the housing market decline has a ways to go. Sales are picking up on the existing home, but as a result, I think existing homebuyers who are selling are realizing, if they want to sell, they have to lower their price. So that's been accompanied by the house drop.

On the new home side it's a little harder to tell. Sales are also down, but again very mixed region to region around the country. WILLIS: Well, that's true across the board, isn't it? I mean, we really see a lot of the problems right now concentrated in the Northeast.

Do you think the decline in sales prices is going to roll out to other parts of the country?

RETSINAS: Well, if we look backwards for a second, the rapid price appreciation was primarily bicoastal. And in a sense, we're paying up (ph) for that double-digit appreciation for the last five or six years.

A good part of the population of the U.S. lives on the two coasts. But there are other parts of the country -- for example, the Texas market, the Atlanta market -- that are still chugging along OK. So it's a little mixed.

WILLIS: Yes, it depends on where you live, as always.

RETSINAS: Always.

WILLIS: In real estate it's all about location, location, location.

If you're somebody who's in the market right now, let's say you've just put your house on the market, would it have been better to wait? And if so, how long?

RETSINAS: Well, again, it depends on whether you need to sell. I mean, the worst thing is to sell at the wrong time.

People -- housing prices for existing homes are generally sticky, which is to say people are more likely to take them off the market. A lot of it relates to whether in fact this is going to affect the overall economy.

We still have income growth, we still have job growth. If we start to get that contagion effect -- that is, job losses in the economy -- then we could be in for an even steeper decline.

WILLIS: That's an interesting point.

If, though, I'm a buyer in this market, it seems like I suddenly have opportunity. How do I leverage that?

RETSINAS: Well, you are. It is a buyer's market.

It was only a year ago, I think, when we talked where, if you put your home up for sale, you were likely to get bids above the asking price. No more. It's a buyer's market. There are many, many options.

I think for the buyer, most of all for the buyer who is going to occupy the home, the owner occupant, still ask yourself the basic question: Do the numbers work for me today? Is it a place I want to live? And much more importantly, am I likely to stay there for the next five to seven years so I can live out whatever cycle that we're in?

WILLIS: OK.

We've talked about buyers, we've talked about sellers. Let's talk about people who are already in their own house, existing homeowners.

Is there anything they should be doing? I know a lot of people out there have interest-only mortgages. Some of them have some of these toxic mortgages that, you know, maybe they should be thinking about.

RETSINAS: Well, they are. And as a matter of fact, they seem to be.

A year or two ago, I think all of us were worried about these exotic mortgages that took on this very large interest rate risk. One of the interesting phenomenons in data we've been tracking is the number of people we are converting and refinancing out of those kinds of mortgages into either fixed rate or even adjustable to have some -- some fixed rate term. So a lot of people are very rationally and very appropriately getting out of those interest rate risks and taking advantage of the low interest rates that still exist.

WILLIS: Well, we'll be following that story, and I'm sure we'll have you back on to talk about it.

Nick, thank you so much.

RETSINAS: Oh, thank you.

WILLIS: A big victory this week for thousands of homeowners in the Gulf region. The U.S. district court ruling says that homeowners flooded out of their homes by Hurricane Katrina can move forward with their attempts to collect insurance.

Now, this contradicts a ruling we told you about back in August that claimed a couple could not collect because their policy didn't cover damage from floodwaters or storm surges.

Now, this story is far from over. Insurance companies are already planning to appeal the ruling. And the final decision is significant because the judge at some point could declare this is a class action case, opening it up to virtually anybody who suffered storm damage in the Gulf region.

We'll stay on top of this story as it develops.

And a federal judge this week ordered the Bush administration to resume housing benefits to Katrina victims immediately. The ruling states FEMA failed to supply an adequate explanation as to why it ended the 18-month housing assistance program for folks who lost their home in the storm.

Coming up on OPEN HOUSE, who to tip and how much to tip this holiday season. Installing windows might seem like a big chore, but we'll tell you how it can save you big bucks on your tax return.

And get ready to light it up. We'll check in with the folks at "This Old House" to show you how to keep the family safe as you decorate for the holidays.

But first, your "Tip of the Day."

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Ever wonder what records to keep and which ones to trash? Go through your bills once a year. December is a good time to do that.

Hold on to bills from big items for proof of their value in the event of loss or damage. Keep original receipts until you get your monthly statements, then shred the receipts if the two match up. And keep those statements for seven years if tax-related expenses are documented.

Retirement and savings plans records, hold on to them permanently. Keep quarterly statements until you receive the annual one. Again, if everything matches up, you can get rid of the old ones.

Oh, and the absolute golden rule? Shred any and all documents with personal information.

That's your "Tip of the Day."

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: It is the first weekend of December and that means you have exactly four weeks, just four weeks to take some serious steps toward saving serious money on your 2006 tax return. And it's not as hard as you may think.

Donna LeValley is contributing editor of J.K. Lasser. She joins us with hopefully some really smart and intelligent advice.

Let's start with some of these tax credits out there for people who are actually improving the energy efficiency of their home.

What can you get, Donna?

DONNA LEVALLEY, "J.K. LASSER": It's terrific, especially now if you're sitting there and you notice where the wind is sort of blowing in. The smaller credit, which is a $500 lifetime maximum for purchases you make in 2006, 2007, but if you want to claim in on your next return make it by the 31st of this month. Basically, it's for windows, doors, insulation, type of repairs you might even be able to do yourself.

WILLIS: And this is a credit, not a deduction. What's the difference? LEVALLEY: Oh, well that's terrific. It reduces your tax bill dollar for dollar. A deduction just reduces your taxable income.

WILLIS: OK.

LEVALLEY: So, when you think about a $500 tax credit, if you're in the 25 percent bracket, it's like a $2,000 deduction.

WILLIS: That's awesome. I love that.

LEVALLEY: Terrific.

WILLIS: OK. Really meaningful, but if I do the big upgrade, the solar panels, there's even more money to be had.

LEVALLEY: Solar panels, fuel cells. Thirty percent of the cost, or up to $2,000. So whatever is the lesser of the two amounts.

WILLIS: OK.

LEVALLEY: So it's much larger. That's also for two years. So you can get a maximum of $4,000 of you do it over two years.

WILLIS: Awesome.

LEVALLEY: So if you plan a big renovation like that...

WILLIS: And again, it's a credit, right?

LEVALLEY: It's a credit.

WILLIS: Beautiful. OK.

We have to talk about AMT, the alternative -- help me out here, Donna.

LEVALLEY: Alternative Minimum Tax.

WILLIS: It's so confusing. I can't even get it right. And I know people out there are afraid of falling into the AMT zone...

LEVALLEY: Right.

WILLIS: ... because they end up paying more taxes. As a homeowner, how can I not fall into that bucket?

LEVALLEY: Well, basically, the homeowner -- one of the things people do to decrease their regular income tax is pay an additional mortgage payment. Now, that usually includes some property taxes. And that's one of those deductions that ultimately can take down your regular income tax liability and make you more vulnerable to the AMT.

So, if you're close to the edge, you may want to think of not doing that sort of regular tax planning step and saving yourself that additional tax.

WILLIS: OK. What form do I need if I want to know whether I'm going to be subject to AMT?

LEVALLEY: That's the 6251. It's available on the IRS Web site, IRS.gov. They have some good instructions for that form. And basically, there's nothing on the 1040 that tells you you're in the danger zone, or do this calculation.

WILLIS: I know.

LEVALLEY: So, if you make $75,000 or more as a single person, or $125,000 or more as a married couple filing jointly, do the extra calculation. Pay for the extra calculation. It's deductible.

WILLIS: Did we say it was complicated? It's very complicated

LEVALLEY: It's complicated.

WILLIS: All right.

Well, let's talk about some good news here. The IRS screwed up, and now it's in our favor, right?

LEVALLEY: Yes.

WILLIS: There is a phone rebate out there. Where is the free money and how do I get it?

LEVALLEY: It's on every tax return. So you don't have to file the long form 1040. It's on every one, the EZ form.

WILLIS: Good.

LEVALLEY: And there's even a 1040-EZT for people who otherwise don't have to file a tax return.

Basically, the first person on the return will get a $30 credit. So it will once again reduce your tax liability or add to your refund by $30. This credit is refundable, and that's unique. Sometimes it can just extinguish your tax liability. But you'll get a check back if they owe you money.

WILLIS: Of course, nobody is auditing the IRS because they screwed up. I just want to point that out.

LEVALLEY: Exactly.

WILLIS: OK.

LEVALLEY: And an additional $10 for every dependent, maximum of $60. And if you're a small business person, you have the old bills, you can claim the actual amount. But you're going to need to substantiate it. So if you threw out your cell phone bills already, it will cost you more to get those bills, those statements for the many years.

WILLIS: Wow. So, if I'm a small business person and I have a ton of phones in my business, I can claim that for every one of those phones?

LEVALLEY: Yes. If you -- if you've saved your records, which you probably have, because a phone is, you know, something you need to substantiate...

WILLIS: Wow.

LEVALLEY: ... if you can find the tax -- because the instructions on the form tell you which tax was inappropriate -- so it's easy to identify on your bill. If you have the bills you can get the actual amount.

WILLIS: Awesome. OK.

We have to talk about charitable deductions, because that's the first thing you think of in December. That's the big windfall that you'll have.

LEVALLEY: Right.

WILLIS: If you make charitable deductions, you've got to make sure you get that check signed by December 31st, right?

LEVALLEY: Right. If you're doing it the last week, I suggest even trying to use a credit card or making it even cash. This way it's completed. If they don't deposit the check, if it doesn't clear before the 31st, it won't count for this year's deduction -- donation deduction.

Also, people should know the rules about donating used clothes and household items changed. And after August 17th, they have to be in better than used condition.

So I suggest just keeping a list, keeping a picture of maybe small appliances or furniture that you donate. In other words, your digital camera, just keep it on your computer.

WILLIS: OK.

LEVALLEY: It won't be too much of a burden.

WILLIS: All right.

LEVALLEY: And use the Salvation Army. They give you great valuations for the things you've donated.

WILLIS: Awesome.

OK. That's a little -- little tough to figure out, but obviously if you take those pictures it will make all the difference.

LEVALLEY: Oh, yes.

WILLIS: Thank you, Donna, for joining us today.

LEVALLEY: Thank you for having me. WILLIS: Straight ahead, it's time to take care of those who took care of you this year. We'll tell you who you should tip, how much you should tip them, and who should be left off the list. Want to know that.

Plus, celebrating safely. We'll check in with "This Old House" for some very important holiday advice when OPEN HOUSE comes right back.

(COMMERCIAL BREAK)

WILLIS: Decorating your home for the holidays? Well, it's a lot of fun, but you want to make sure that you do it safely.

Tom Silva from "This Old House" put me to work to show you how to string outdoor Christmas lights the right way.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): So, safety issues, the front door, we're decorating for the holidays, you say it's mot as easy as it looks.

TOM SILVA, "THIS OLD HOUSE": Well, decorating the door is easy, but you want to make sure that whatever you're plugging those lights into is protected against any damage. Like water, for example, or rain.

You want to make sure that you have some type of protective -- this is what is called a ground fault circuit interrupter plug. And what happens is, let's say you have a hairdryer or a radio, and you throw it in some water. It's going to blow the circuit right here and not the fuse in the basement.

It's called a shock to ground. All right? And that protects you against getting a shock if you plug something wet in.

WILLIS: OK. Makes perfect sense.

SILVA: All right?

WILLIS: And outside you have these cool little covers you put on top, too.

SILVA: Right. Well, this goes on the wall. And the ground fault circuit interrupter goes inside that so that when you plug your cord into it, this closes, and they stay watertight inside.

WILLIS: My problem is, is that I always string all of these together, whatever I have. I stick it all together and plug it in and just hope for the best.

SILVA: You hope for the best.

WILLIS: Right.

SILVA: If you dim a little, you blow a fuse here and there. But that's not the safe way to do it.

WILLIS: Right.

SILVA: If you look on the box that you're lights are coming in, it will tell you how many stands of these lights should be plugged into one circuit before you go to another strand. So this, I believe, is three.

You can do three of these strands to one circuit. These light bulbs are bigger, they generate more heat. And they can only have up to 60 bulbs, or two of these can be plugged into one breaker.

WILLIS: So the directions will spell that all out?

SILVA: Absolutely. Follow the directions on the box.

WILLIS: OK.

SILVA: It's very important.

WILLIS: That should be easy.

SILVA: There's all different ways that you can hang your lights around the door, but here's one little hook right here that you can actually take this strand of lights, and you could go around your door and put a lot of hooks in place and hook them up like that. Go all the way around.

WILLIS: All of the way up the door. Sure.

SILVA: But there are different ways, different methods. And here's one right here.

There's a little plastic tie that you can nail to the side of your trim. So if you want to nail that in like that, just don't hit my hand.

WILLIS: How am I doing? Two-handed.

SILVA: Two-handed hammer. That's good. I haven't seen that in a long time.

Now, you can put those two feet apart.

WILLIS: And so it's just going to fit into that.

SILVA: And you just push it right into the little clip. And go all of the way around your door like that.

WILLIS: Very nice.

SILVA: It looks nice, it's plastic. You're not driving a staple in through the wire causing a shock.

All right. So we go all the way around the door with that, about two feet apart. You want to make sure that they're tight so that they don't blow off in the wind.

WILLIS: Yeah. They're not going to move, they're not going to blow away in the wind.

SILVA: And you're not going to get a shock when you plug them in.

WILLIS: Love it. Need a wreath.

(END VIDEOTAPE)

WILLIS: All right, Tom, I want you to know I've been practicing my hammering.

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.

Coming up next, tips on tipping -- who, when, how much. We have got the answers here, a complete guide when OPEN HOUSE comes right back.

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

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Last year, computers were the "it" gifts. This year they've been pushed off the screen by a hot new item, the HDTV.

UNIDENTIFIED MALE: This year we're seeing incredibly low prices on HDTV. And I think that we're literally facing the tip of the iceberg.

WILLIS: But to get your hands on one, you'll have to act fast.

UNIDENTIFIED MALE: The best prices available this Christmas is going to come in the early bird specials, and I think you'll see more early bird specials.

WILLIS: Don't even think about shopping online for your new gadget. HDTVs are fragile and shipping costs can really add up. So get to the store and get in line for this year's must-have item.

That's this week's "Trendspotting."

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Well, the holidays are almost here, and in the spirit of giving, let's talk tips.

Mary Mitchell is the author of "The Complete Idiot's Guide to Etiquette," which I could benefit from completely, Mary. We are so glad to have you here. Thanks. MARY MITCHELL, ETIQUETTE EXPERT: You're welcome.

WILLIS: OK. Let's talk about tipping. Who do you tip? You say something about your team. What does that mean?

MITCHELL: Well, we need to think of the people in our life as our team. So think about the people who are at your house, maybe someone who helps clean your house, maybe someone who helps take care of your kids. Maybe somebody takes care of your yard. Maybe somebody...

WILLIS: So all of the service people in your life.

MITCHELL: All the service people in your life.

WILLIS: People you're in contact with every day or every week?

MITCHELL: People you're in contact with on a regular basis.

WILLIS: OK.

How much money do I give them? I mean, there -- there seems to be no hard and fast rules here. How do I figure it out?

MITCHELL: True, there's no hard and fast rule. But think in terms of, if somebody has been with you for, let's say, a year, or close to a year, you want to give them maybe a week's -- a week's pay as a tip.

WILLIS: Wow. That's a lot of money. Do I -- am I giving the guy who delivers the mail a week's pay? I mean, how do you figure out people who are not on a weekly or a monthly salary?

MITCHELL: Well, the most important thing is to remember to appreciate them. And write them that you appreciate them. Don't just hand them off a $20 bill.

Secondly, you want to make sure that you check policies, because some companies don't permit cash tips.

WILLIS: That's interesting to know.

MITCHELL: That's right.

WILLIS: OK. So, like a babysitter, for example, I might give her the same amount that I give her every week for taking care of the kids, right?

MITCHELL: That's right. In a card with a note.

WILLIS: All right. That sounds like a great idea.

I thought one of the interesting things you talk about is using gift cards instead of cash. Why?

MITCHELL: Because if you use a gift card, it tells the person who's getting the gift that you took a little time to think about what might please them.

WILLIS: OK. And so you mentioned before, you know, you might want to put this in a gift card instead of just handing the cash over -- the gift card over directly, right?

MITCHELL: Right.

WILLIS: OK. So, obviously, there's an etiquette not just the gift you pick, but also how you hand it over.

Now, there are a few people you have to be careful about because there are rules. There are some gifts, in fact, that aren't appropriate at all. Tell us about that.

MITCHELL: I think it's dicey to give alcohol at all. Even though I love chocolate, I don't think it's appropriate to give candy to someone who is talking about losing weight, for example. Joke gifts can be kind of scary if the person really doesn't get the joke.

WILLIS: That's a great idea. OK. Well, I'll watch out for that. I always love giving gifts that are funny...

MITCHELL: I know.

WILLIS: ... but you've got to be really careful.

And quickly, just to make sure we understand how this works, everybody's overloaded at Christmas spending, but this is something you really need to make time for, right?

MITCHELL: It's so important to budget for it. And everybody runs into the unexpected. So don't forget that Valentine's Day is coming up.

WILLIS: All right, Mary. We appreciate your time today. Thank you so much.

MITCHELL: You're welcome.

WILLIS: 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.

Don't go anywhere. Your top stories are next in the "CNN NEWSROOM."

Have a great weekend.

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