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Open House

Looking Back at Real Estate 2006, Forward to 2007; DIY Holiday Crafts for Kids; New N.O. Homes

Aired December 16, 2006 - 09:30   ET

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

T.J. HOLMES, CNN ANCHOR: Now in the news, daybreak expected to bring new hope for rescuers at Mt. Hood in Oregon. The three climbers are still missing there. Better weather today could give search crews the break they need. We'll take you to Mt. Hood for the very latest next hour.
And of course, in the Pacific Northwest, they're trying to recover from a fierce windstorm as well. Nearly a million people still without power this morning. And it could be days before utility crews get that power back on. Six deaths have been blamed on the storm.

Palestinian President Mahmoud Abbas wants immediate presidential and parliamentary election. He is calling on Palestinians to reject the formation of a unity government with the rival faction Hamas. Hamas is against new elections.

On the phone and taking shop, Cuba's communist party newspaper reports that ailing leader Fidel Castro spoke by phone to a work session of a Cuban assembly. That's according to the Reuters News Agency. There's been no other official word about the 80-year-old leader in 11 days.

Your next check of the headlines coming up at the top of the hour. But first, OPEN HOUSE with Gerri Willis starts right now.

GERRI WILLIS, HOST: You might be thinking about buying or selling your home next year. Maybe you want that deck you've always been talking about, or what about that kitchen reno? We're bringing together three of the top housing analysts in the country to help you make plans for your house in 2007. OPEN HOUSE starts right now.

I can't believe it's time to talk about 2007. Well, almost time. We'll get to our special 2007 real estate preview in just a minute. But, first, we've shared the stories of so many home owners this year in OPEN HOUSE. And we decided to check back in with a few of them to see how they fared in this year's real estate markets.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Kate and Hans Koning couldn't believe their home had been on the market for nine months when we first talked to them in September.

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

WILLIS: The downturn in housing has stuck sellers with homes they can't get rid of. Today, it's been almost a year since they put the house on the market.

KONING: We have some people who are interested, but they have a house to sell, so, you know, I didn't want to go into contract with them or anything because I didn't know how long their house would take to sell. So I'm just kind of biding my time.

WILLIS: Phoebe and Scott Marioni were in a similar situation last November. Their neighbors had sold in no time. But they weren't as lucky.

SCOTT MARIONI, HOMEOWNER: The market has just taken a turn for the worse. It's taken us a lot longer than we expected and then -- that it had taken other people to sell recently.

PHOEBE MARIONI, HOMEOWNER: I'm thinking two weeks. I think if we had put it on the markets two weeks sooner, we would have sold it. That's how I really feel.

WILLIS: A buildup in housing inventory made it hard to sell their two-bedroom condo, but with a baby on the way, they had to sell. So they took drastic action. They cut their home price by nearly $30,000 and almost immediately had a bidding war on their hands. They sold the house for $280,000, less than their original asking price, but still a nice profit.

It's a buyer's market, and experts say what the Marionis did was smart. Cutting your home's price can get it off the market and let you move on. But some people anticipated the downturn and didn't have to cut their home price at all.

DAVID D'AUSILIO, HOMEOWNER BROKER: It's just a matter of time before the market flips over. And then people that actually really have to sell are going to be -- start lowering their prices. When that happens, you're going to be chasing the market down, not chasing it up.

WILLIS: David and Terrie D'Ausilio are real estate agents. They watched the market and decided it was time to sell a couple of years ago.

TERRIE D'AUSILIO, HOMEOWNER BROKER: We're looking at where we might be in say four or five years. And if we decided sell at that time, where would the market be? And we felt that we wanted to just cash in now as opposed to taking our chances four or five years down the road.

WILLIS: They sold near the top of the market, rented for a while and are sitting pretty.

D'AUSILIO: It meant tremendous opportunity, we were able to take that money and invest it in investment real estate which appreciated greatly during the same period of time and now we just bought back into the market.

WILLIS: The moral of the story, at least what we learned, it's critical to respond to changes in the market and act quickly.

(END VIDEOTAPE)

WILLIS: OK. It has been quite a year. Mark Zandi is with Moody's Economy.com in Philadelphia. Greg McBride is Bankrate.com in West Palm Beach. And Brad Inman is Inman.com in San Francisco.

Good to see all three of you. Let's start with what happened this year. 2006, what a surprise. Brad, did anything pop out at you that you thought, wow, this will never happen and it did?

BRAD INMAN, FOUNDER, INMAN.COM: Well, this is really a market in transition. Anyone that was hoping that we'd have a continuation of the housing boom had bad news this year. It really went from a seller's to a buyer's market fairly quickly. And I think what surprised me is the speed with which that occurred. Inventory doubled in many markets. And it really -- the whole market changed in favor of the buyer for a change, which was great.

WILLIS: Well, another big surprise, Greg, obviously, was that interest rates went lower. Everybody even predicting they would go higher.

GREG MCBRIDE, BANKRATE.COM: A year ago at this time, Gerri, you asked me for a prediction as to where mortgage rates would finish 2006. And I said the 30-year fixed would be at about 6.8 or 6.9 percent. That is where they were in the middle of the year. But since then they've retreated mightily. They're now at about the 6 percent mark. I think that's good news for buyers, for people that are facing rests on those adjustable rate mortgages.

WILLIS: Mark, everybody looks at your forecast, even the pros rely on your numbers to figure out what's going to happen. You know, I don't think anybody realized just how quickly this market was going to fall apart this year?

MARK ZANDI, MOODY'S ECONOMY.COM: Yes. That was a surprise to me. I mean, the market was boom-like at the start of the year, and of course, it couldn't be worse right now.

WILLIS: Yes, absolutely. So as you fire up that crystal ball, obviously, you're weighing the kinds of things that will weigh on the market. Mark, tell what are the major things that you think are going to contribute to what the market is going to be like this coming year? What are the major elements that you're considering?

ZANDI: Well, affordability is key. Affordability collapsed when prices soared and mixed in with somewhat higher interest rates. So we need to see better affordability before the market will find a bottom. Also, the market was infected by a lot of short-term investors. And the market won't find a bottom until those investors are out of the marketplace. WILLIS: Well, Brad, you know all about those short-term investors. I mean, come on, what were they, 25 percent of the market this year? How can that be sustained?

INMAN: Yes. It couldn't. An they've left the market, Gerri. They -- you know, this flipping is dead. Anyone who is thinking about flipping property now is going to really face a deadly market. And they've left the market, they're out doing something else now. Not real estate. So that really did change the market. But also at the lower end of the market, easy money, you could fog a mirror, you could get a mortgage. Those days are long over. And so the easy money is not there for the first-time buyers. So a lot of things that were going in favor of the market before really collapsed in '06. And I thin in '07, we are going to see a continuation of that. We don't think speculators are going to come back. And we think first-time buyers are going to struggle.

WILLIS: Quickly, Greg, you know, I look at the mortgages that have been out there. A lot of toxic mortgages. Will we see fewer of those underwritten this year?

MCBRIDE: Oh absolutely. And a lot of that just has to do with the shape of the yield curve, with short-term interest rates rising, long-term interest rates falling, a lot of buyers that stretched the affordability by taking toxic mortgages no longer have that option available. Or there's very little benefit to doing that. And so fixed rates have really re-emerged as the way to be.

WILLIS: All right. Fellas, stick around. We'll continue this conversation in just a second.

Also ahead, getting the children involved in the holiday spirit. "Weekend Project" with kids is coming up.

And lending a helping hand in homes all in the name of music. That story and so much more coming up. But first, your "Tip of the Day.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Don't be one of the 10 million American whose fall victim to identity theft each year. If you suspect fraud, act quickly to avoid damage to your finances and your reputation. First, contact the FTC to report the situation by telephone at 1-877- IDTHEFT, or online at ftc.gov. Regular monthly bank statements or other important documents start missing from your mail, check with the Post Office to see if an identity thief submitted a change of address form. Contact the Social Security Administration if you suspect your Social Security number has been stolen. And contact the IRS if you suspect improper use of your ID number in connection with tax violations. That's your "Tip of the Day."

(COMMERCIAL BREAK)

WILLIS: Welcome back. Time now to talk real estate 2007. Everything you should be looking out for. We're talking with Mark Zandi, Greg McBride, and Brad Inman.

Really the blue-ribbon panel here, guys. Good to see you again. OK. Let's look to 2007. Mark Zandi, starting with you, boy, we have got scary numbers this year. Median prices across the country falling. I mean, that's really startling news. I don't think anybody expected it. Mark, what is your outlook for 2007?

ZANDI: Well, '07 will be another tough year. I do think home sales will bottom out in early '07, but I think construction and particularly house prices will fall throughout most of the year. In fact, nationwide, I would expect median prices to fall somewhere close to 3, 4 percent on a calendar year basis.

WILLIS: But you know, Mark, what is interesting about that is you look at the last five years. Prices have actually gone up 55 percent. So carving back 3 percent, 4 percent for most people, it's not going to matter. They're still going to make a ton of dough on their house.

ZANDI: Exactly. It's really a problem for recently new home owners, those that have bought in in the last couple or three years, particularly in previously very juiced up parts of the country, California, Florida, the Northeast.

WILLIS: Brad, to that question, I mean, what do you do if you bought at the top of the market? Now, maybe you've overpaid for that house. If you had to sell it you couldn't get the money you need out of it. What's the solution?

INMAN: Well, enjoy the house and stop worrying about what it's worth. If you have to sell, price it right. Sellers had stars in their eyes in '06. The market shifted and they didn't get those prices. Oh-seven is the year that sellers must get realistic and price it right. And for those that are just sitting, enjoy your house and don't worry about whether it's going up or down. Over the long term, your house will appreciate and you're paying down the debt and real estate is still a good investment.

WILLIS: Greg, you know, I talked before about toxic loans. It looks like people are getting smart about this. But if you're taking out a mortgage loan in 2007, let's just work through the list. What are the best loans, 30-year fixed rate?

MCBRIDE: Thirty-year fixed is very attractive. And it's a good, safe choice. There's nothing wrong with it. It may not be the optimal choice in all cases. But there's nothing wrong with going that route.

WILLIS: How about an ARM?

MCBRIDE: An ARM can work for some people. I will give you an example. If you were moving into a home, you expect to be there seven, eight years, then something like a seven-year ARM or a 10-year ARM may be the right thing for you, because if your timetable pans out, it functions as a fixed-rate loan. You're going to bear a little bit more risk, but you'll get a lower rate for bearing that risk. WILLIS: All right. What loans should I just absolutely stay away from?

MCBRIDE: Well, you know, I don't think that advice changes. You know, realistically, if you're putting yourself in a mortgage in an effort to stretch affordably and you're banking on your income rising faster than the mortgages payments potentially could in in the future, you need take a long hard look at that. Things like interest-only loans, pay option ARMs that were all the rage a few years ago, because it could generate tangible savings, generates much less in the way of savings now, but still carries the very same risk of escalating payments in the future. Unless your income is really going to accelerate, you really need to look hard at that.

WILLIS: OK. Boy, I have got to thank all three of you guys, you're great. I really appreciate your help today. Brad and then Greg McBride, Mark Zandi, a real blue ribbon panel. Thank you.

Straight ahead, we're going to lighten it up a little bit and talk decorating. Christmas decorating with kids. "Weekend Project" is next.

And see how the musicians that make up New Orleans are getting a home of their own. It's a wonderful story. And it's coming up on OPEN HOUSE.

(COMMERCIAL BREAK)

WILLIS: Decorating the home for the holidays isn't just for adults. Cat Wei from DIY Network, is going to show us some fun projects you can do with your kids all in the spirit of the holidays.

It's good to see you, Cat.

CAT WEI, DIY NETWORK: Nice to meet you.

WILLIS: And I also want to introduce our special helpers today. We have Ellie and Mitchell (ph). Thank you for joining us.

All right. Are we ready to decorate? We've got cool stuff here. Cat, what are your ideas?

WEI: Well, I've got a lot of ideas. Holidays are really great for taking an excuse to decorate with your kids because there are a lot of crafts going on.

WILLIS: And this is where I'm challenged, I've got to tell you. But you've got cool stuff over here.

WEI: The first thing is a felt snowflake. And basically when you make different size felt snowflakes, you can use them from tree skirts on the bottom, that one over there, to a size like this would be great for a table to or you could do an assortment of different colors and make them kind of like a table runner going down. It's very elegant, very fun. And the really little ones...

WILLIS: It's pretty, and is this an ornament?

WEI: Yes, that's an ornament. So depending on the side square you make, you can have alternate uses for the different snowflakes. So this one is an ornament.

WILLIS: Those are great.

What do you guys think? Do you like those?

Yes, you like those very much? That's great.

Now, you have got some got extra special stuff over here. I always try to make these to decorate the tree and it's always something of a disaster, Cat.

WEI: Well, the first mistake a lot of people do is use mushy cranberries, because they get really juicy, they get really messy. So the trick is to actually use refrigerated cranberries.

WILLIS: We've got some here.

WEI: You basically just want to thread on some popcorns and cranberries and alternate. You want to make sure you try to miss the kernel. Right.

WILLIS: Looks dangerous, but it's not.

WEI: Yes. Thread on a couple like this. You can have a couple pieces of popcorn, too, if you get hungry.

WILLIS: OK. All right.

WEI: And just cut it down to the bottom. Put a few more on.

WILLIS: Thank you. I've got to tell you, mine do fall apart, but you've got something extra special here with these little knots, I think it is really attractive.

WEI: We added a little bit of wire ribbon to it. And it's got some nice shape. So you can kind of bend it around, add a little bit more dimension to the garland.

WILLIS: Beautiful. OK. I want you to talk to me a little bit about the stockings. And this is where Ellie and Mitchell can really get involved. Because the stockings are extra special, the way you have designed them, Cat, they are really pretty. Tell me how you put these together.

WEI: Well, it's very easy. You basically make a paper template. And you can make a very free hand sketch. It's a very easy shape to draw out. We cut little with the pinking shears and made a little crafty edge to it.

WILLIS: I have pinking shears right here.

WEI: And there are two ways to sort of sew it. You can either machine stitch it if you have a sewing machine with a zigzag or you can also do just a hand-stitch with some yarn.

WILLIS: So you can see the edging that you get right there.

WEI: Yes.

WILLIS: OK. Guys, are you going to work a little bit on yours? Because you have some extra special lace and all kinds of fun stuff to do.

WEI: So here's two. You guys can get started. I like to just -- making a little bit of striping action. There's a little bit of a cute diva snowwoman. And...

WILLIS: How did you do this?

WEI: That's just remnants of fabric that I found in my bin. It's just a glitter fabric. And just cut out some stars and you have sort of a rock holly berry stocking.

WILLIS: Rock holly berry, I love that.

WEI: Yes.

WILLIS: OK. Well, let's hope these two find the letters for their names and put those together quickly.

WEI: Yes. These are great. They are pre-made, pre-cut felt letters. So they are self-adhesive. And you have just got to find your name and you can customize your stocking.

WILLIS: All right. So let's talk a little bit about these special goodies. What have you got going on here, Cat?

WEI: Well, these are really fun. I brought two options of pom- pom ornaments. And the one thing you can do is you can purchase pom- pom in all different sizes and shapes. And they're really great because basically kids can customize them and make whatever animals that come to their imagination. So we have a little bear set here.

WILLIS: Those are adorable. I love those.

WEI: Thank you.

WILLIS: What about this? This is...

WEI: This one is a handmade pom-pom. These are sort of pom-pom critters.

WILLIS: Ellie, tell me, which is your favorite ornament here? I mean, what do you really like when you look at the table?

UNIDENTIFIED FEMALE: This one.

WILLIS: Do you like that? Mitchell, do you have a favorite?

UNIDENTIFIED MALE: I like this. WEI: The bears?

UNIDENTIFIED MALE: Yes.

WILLIS: All right, you guys, thanks for your help today. And, Cat, great to meet you. Thank you as well.

WEI: Nice to meet you too. Thank you for having me.

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.

Still ahead, a new village of new homes that's bringing music to the ears of some folks in New Orleans. That story when we come right back.

(COMMERCIAL BREAK)

WILLIS: Some 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. And that is when the idea of a new village came in, anew 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 a hard time finding work, the city's music scene isn't fully recovered. So getting just one or two gigs a week can 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 a concept of creating a housing project, especially for musicians. WILLIS: It would let musicians buy a new three-bedroom home at a cost of only $500 to $600 a month.

SMITH: 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.

SMITH: Yes, baby, that's what I'm talking about!

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: And that is a great story. We've checked in with Ellen Smith since then, and she tells us that she's hoping to move into her new home on January 1st. A new year and a new home. If you want to learn more about the musician's village and the many other projects Habitat for Humanity is working on in New Orleans, log on to habitat- nola.org.

And you can find more about the stories we cover on our Web site, cnn.com/openhouse.

As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back next week right here on CNN. 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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