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To Sell or Not to Sell?; Universal Default; Home Makeovers That Increase Home Value
Aired March 31, 2007 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
GERRI WILLIS, HOST: Good morning, everyone. I'm Gerri Willis, and this is OPEN HOUSE, the show that saves you money.
We're going to show you how just one late payment can send all your credit card and loan interest rates soaring, and how to boost the value of your home without emptying your wallet.
But first, the mortgage meltdown is taking a toll on the economy. Just this week, Federal Reserve chairman Ben Bernanke blamed the slowing of the U.S. economy on problems in the housing sector.
Now, one of the ways this impacts you is on the value of your home, specifically if you're trying to sell your house. And when the traditional house-selling season meets the mortgage meltdown, well, let's just say it's not good news for homeowners.
WILLIS (voice-over): Here's a statistic that might mislead you: Existing home sales went up by 3.9 percent last month, the biggest rise in three years.
While that report today from the National Association of Realtors sounds good, industry insiders say it could be an aberration caused by good weather in December and January. In fact, experts at Economy.com expect housing prices nationally to fall by 3 percent to 5 percent this year.
They are blaming record foreclosures across the country, an estimated 2.2 million foreclosures in the next few years. Many of these involve people with less-than-ideal credit who get so-called subprime mortgages. Those are loans with higher interest rates, rates that keep going up after a relatively short term, so high, some can't afford the payment. With many more homes expected on the market, with many fewer buyers qualifying for mortgages, home prices generally are expected to drop.
Even the usually upbeat National Association of Realtors is hedging its bets.
DAVID LEREAH, SENIOR VICE PRESIDENT AND CHIEF ECONOMIST, NATIONAL ASSOCIATION OF REALTORS: Foreclosures are going to be a problem. They are -- they're at an all-time high. They will continue to increase. The -- some estimates are maybe a million foreclosures over the next several years. It's going to be hard for the local markets to absorb. WILLIS: In some areas, officials are so concerned about the number of houses left vacant after foreclosures that they are mowing lawns and fixing broken windows to prop up the value of surrounding homes.
Economy.com predicts that local markets in Sarasota, Detroit, Sacramento will be the hardest hit, with price decreases of 9 percent or more. Banks are trying to stop the bleeding with tighter lending standards.
ROBERT SHILLER, ECONOMICS PROFESSOR, YALE UNIVERSITY: Price decline is a fundamental factor that inhibits mortgage lending, because mortgage lenders know that, when prices are falling, people are less likely to repay their loans. And, so, they're -- they are going to be pulling back on their -- on their credit.
WILLIS: But Shiller says the current crisis could spill over to the greater economy. And it could be a while before home buyers start sending the market up again.
SHILLER: If we look back at the last cycle, home prices declined for several years in the early 1990s. This is a bigger cycle. So, I think it's possible that homebuyers might take their time.
WILLIS: That means homeowners will be struggling to sell. And homebuyers may be staying put for some time to come.
WILLIS: The mortgage meltdown is heating up more than it's cooling down, but what you probably want to know is, will it affect your ability to sell your home?
Mike Larson is a real estate analyst with moneyandmarkets.com in West Palm Beach.
Good to see you.
MIKE LARSON, REAL ESTATE ANALYST: Glad to be here.
WILLIS: All right, well, let's get down to it. If I'm trying to sell my house, foreclosures are sky high, people's -- the prices people are willing to pay for homes going down now.
What does it mean if I'm a seller?
LARSON: Well, I think if you're a seller today, you really have to be realistic. And this clearly isn't last year's market, not by a long shot.
We've got a real problem in terms of inventory for sale on the -- on the market. Roughly a million to a million and a half extra new and existing homes for sale out there in this country. So what that means...
WILLIS: So a real glut, right? I mean, you've got to say, this is a lot of houses on the market.
I think we can even show our viewers what's going on here. You see that little squiggle on the far right. I'm telling you, that is a bad sign.
Now, what's terrible for sellers, though, could be good news for buyers. What's the opportunity out here if you're trying to buy a house?
LARSON: Well, I think buyers fall into two categories right now. If you've got good credit, meaning you've been paying your bills on time and you have plenty of income to support a mortgage, you've got a great time to search for some deals right now. If you've got subprime or what you call bad credit, then you have a little bit more trouble. And that's because lenders are getting tighter with their lending standards.
You might need to spend more time saving up for a down payment, or even paying off some of your overdue credit card debt and then going out to and doing some home shopping.
WILLIS: Yes, you can probably forget about putting nothing down, right? That's just not going to work anymore.
LARSON: Yes. Lenders are actually dusting off those old standards books they used to have.
All right, so we talked about what's in it for buyers and sellers, what's going on out there. You know, I know that you usually talk to investors, and you follow what's going on in the markets. We've had a couple of very interesting reports just this week, one on new homes for sale, which was very depressing, and we recently had a report, too, on existing home sales, which was actually pretty positive.
What do you make of that, and what should homeowners take away from those reports?
LARSON: Sure. Well, I think when you look at it year over year, in February we had existing homes sales down about 3.5 percent and new home sales down about 18 percent. Clearly, the new home market has been getting hit harder than the existing home market right now.
I think what it just shows is that we're going to need to really work on these inventories by sellers being realistic, by accepting lower prices, and throwing in some incentives to move their homes. One thing I do here is look through the real estate ads as part of my job, and I've seen some really creative offers lately. One home seller was willing to give you a 2-carat diamond if you bought their house, and the other one wanted to give you a 1984 Mercedes.
WILLIS: That's crazy.
LARSON: That's really what it takes -- that's what it takes these days.
WILLIS: That's crazy. I mean, you should really be pricing your house right, not, you know, offering up everything you have at home to make a house move, right? I mean, it makes more sense just to get the price right, doesn't it?
LARSON: Sure. And I think that's what we're going to see. People are gradually going to realize, you know, "I've got six or seven other houses on the block for sale. I need to make mine stand out." And buyers are going to be looking for a great price.
LARSON: Now, Mike, here's the important question -- if you were planning on selling your house this spring, if you can wait, does it make more sense to wait six months, a year, to see if you can get a better price, to see if the market stabilizes?
LARSON: Well, I think, you know, we're going to be facing slow market conditions for quite some time. I think this spring is what I call the spring of sellers' discontent. It's not going to be that easy on you.
If you can afford to hold out until 2008, spring season, maybe conditions will be better. That's pretty far off, and some people have to sell. But it might not be a bad idea.
WILLIS: Well, Mike, thanks for being with us today. We appreciate it.
LARSON: Glad I could be here.
WILLIS: Straight ahead on OPEN HOUSE, what you need to know about your mortgage.
Then, universal default. You may not know what it is, but you should.
And weekend projects that can up the value of your home without spending the big bucks.
But first, your "Tip of the Day."
WILLIS (voice over): Renovating your home to raise your selling price is serious business. Obtain bids from at least three licensed contractors. Ask for references, or better yet, ask to see some of the contractor's previous work.
Make sure your contract has all the details, including start and end dates, material specs, and a payment schedule. Put just 10 percent down. Pay 25 percent when plumbing and electrical work are done, 25 percent after cabinets and windows, and 25 percent for flooring and painting.
Don't hand over the last 15 percent on the final day. It's called retainage, and you should keep it for a month, just to make sure everything is in good, working order.
Most importantly, make sure your contractor is properly insured. Otherwise, you could be held accountable.
That's your "Tip of the Day."
WILLIS: We want to help you avoid a mistake. If you bought a hybrid car last year, the IRS is giving more than a $3,000 credit if you bought an electric car last year. The key word there, "electric," which hybrids like the Prius are not.
Now, some folks are falling out the wrong form and, therefore, ending up having to return more than $2,000 to the tax man. Now, if you bought a true hybrid, make sure you fill out the correct form to get your $1,000 tax credit.
And you may not know this, but missing just one payment on a credit card, your phone bill, or even a car payment can cause the interest rate of every single credit card or loan you have to go up. That's right. It's called universal default, and like it or not, chances are you have at least one account that has it. But we're going to tell you everything you need to know to keep you protected.
Ed Mierzwinski has testified before the Senate on this issue. He's with the US Public Interest Research Group in Washington.
Ed, good to see you.
ED MIERZWINSKI, CONSUMER ADVOCATE, US PIRG: Good to see you, Gerri.
WILLIS: All right. Let's explain this just a little bit more. What triggers universal default?
MIERZWINSKI: Well, the credit card companies have the right under the law to change the rules at any time for any reason, including no reason. They've come up with this idea that if you pay some other credit card company or your utility bill, or even have an unpaid parking ticket, that even though you've paid them on time as agreed all the time, they can raise your preferred rate from five percent to 30 percent or more.
MIERZWINSKI: It's called universal default.
WILLIS: Well, this is amazing to me. What business of it -- of the credit card companies is it that I defaulted on something else, that I was late with a payment somewhere else?
MIERZWINSKI: Even the regulators were upset, but they didn't slap any of the banks with fines, and that's the reason they're still doing it. The regulators sent around a little "please don't do this" notice, unless you can prove that the consumer really is a bad risk. But they're still doing it.
WILLIS: So how do they know that I'm late on, say, my utility bill?
MIERZWINSKI: Well, the credit bureaus are companies that sell credit reports. You can buy your credit report from one of the credit bureaus. They also sell services to businesses. And so the credit card companies subscribe to a service that's a dinging service.
Every time there's a ding on any of their customers' accounts, they get a note overnight.
WILLIS: Wow, a ding service.
MIERZWINSKI: A ding service.
WILLIS: That's just what I want to hear about. That's crazy.
What can I do as a consumer if I don't want to be subject to this? I mean, because, look, a 30 percent interest rate on your credit card, that used to be illegal.
MIERZWINSKI: Even if a bank says it's no longer doing universal default -- and a couple of the big ones swear that they are not -- they may still have a re-pricing clause.
WILLIS: What's that?
MIERZWINSKI: They may still -- well, it's like universal default, but with another name, the right to re-price your account. So the best thing we can advise consumers to do is, if you're a victim of universal default, if your credit card interest rate all of a sudden goes to 30 percent or more, which could triple your minimum monthly payment and increase your interest load dramatically, call the credit card company and say, "There must be a mistake. I want to know why and how you're doing this."
You should consider transferring that balance to another card. But be careful. Don't cancel the card until you're sure you qualify for another card.
WILLIS: They get you coming and they get you going. I think that's the way that works out.
But again, is there anything that people should be doing, writing letters of complaint? Is there anybody out there who cares?
MIERZWINSKI: Absolutely. The Senate has started to look at this issue, and that's why some credit card companies are starting to clean up their act. They're trying to head off regulation by the Congress.
Write to your senators, write to your members of Congress, and complain also to the credit card company when they do something unfair to you. We've also found in a US PIRG study that over half of the consumers who complained about their interest rate were able to get their own credit card company to lower their rate, because they said, hey, I'm going to get a new credit card. It's cheaper for the company to keep a good customer.
They're making a lot of money on you even at 15 percent. The 30 percent is just out of control and unfair.
So, call your credit card company, ask them to deflate your rate, or you'll vote with your feet and march to another company.
WILLIS: You know, I have done that myself. It's easy enough to do.
Ed, thanks for the great advice.
MIERZWINSKI: Thank you.
WILLIS: Sill ahead on OPEN HOUSE, tips on your mortgage.
Plus, add value to your home without breaking the bank.
And learn how you don't have to back down while McMansions take over your neighborhood.
But first, your mortgage numbers.
WILLIS: It's that time of year. Folks all across the country are getting ready to sell their homes. But how much money you get for your home, well, it can be up to you. Certain projects can really up the value of your home without setting you back too much cash.
Sid Davis is the author of "Home Makeovers That Sell in Salt Lake City".
Sid, good to see you.
SID DAVIS, AUTHOR, "HOME MAKEOVERS THAT SELL IN SALT LAKE CITY": Thank you. It's good to be here.
WILLIS: All right, you say you've got to de-clutter. Job number one, get rid of the junk. And I think you mean more than the dirty socks and the newspapers, right?
DAVIS: Oh, absolutely. There is nothing that makes a room look smaller than a lot of excess furniture. And you've also got to get the pictures off the wall, all the trophies, the big sailfish you caught down in Mexico last year. That's got to go.
WILLIS: How come? Why do you have to take out the personal effects? I think that's -- you know, people wonder why they have to take down the pictures of the family and the trophies. DAVIS: Well, the big reason for that is that people buy homes on emotion. And if they can't envision themselves living in the home, they're not going to buy it, and they're not going to make an offer.
So, the first thing you want to do is take your home to neutral. Make it a space where the buyers can come in, look around, and say, you know, I can envision myself living here. I can see my furniture here, I can see my pictures on the wall, I can see my golf trophies there.
You want to make it comfortable enough for them so that they can see themselves living there. Then they'll make an offer.
WILLIS: Well, you know what's interesting, is that people spend a lot of money sometimes prepping their home for sale, and they spend a lot of money in the kitchen. Do you have to do a total makeover of the kitchen to really look great once you put that house on the market?
DAVIS: Oh, absolutely not. There are several things you can do.
You start with your kitchen cabinets. Maybe a good cleanup will work for them. If not, you can sand them down, restain them if the wood is too dark or in not too good condition. You can have them laminated. You can paint -- even a bright white does a really great job.
So, before you put a lot of money in replacements, see if you can recycle what you've already got.
DAVIS: You spend $30 or $40 in stain and paint, and it will save you a couple thousand dollars in replacing those cabinets.
WILLIS: Yes. Just quickly, home inspectors, should I hire one?
DAVIS: Absolutely. In fact, I suggest to my clients, hire an inspector to go through the home and do a report on it before they even put it on the market. Then if they have a list of things that need to be done, they can use that as a checklist.
And once they've got this done, use the checklist as a sales tool. Make that report available to any buyers that come through. Take the page where you fixed all the things that are wrong. Include the receipts and work orders in that, let the buyers see that you've done this stuff.
WILLIS: Great idea.
DAVIS: And it will go a long way towards increasing your credibility.
WILLIS: Sid, thank you so much for the great advice. We appreciate it.
DAVIS: Thank you.
WILLIS: As always, if you have an idea for a "Weekend Project, "send an e-mail to firstname.lastname@example.org. And if you want to check out this "Weekend Project" again, check out our Web site, cnn.com/openhouse.
Up next, tips to help you with your mortgage.
But first, we take you out to the Wild, Wild West, to Arizona, for the fastest growing county in the country in this week's "Local Lowdown".
WILLIS (voice over): Maricopa County, Arizona, population 3.6 million. It's growing faster than any county in the nation, thanks to a diversified economy rich with defense contractors, high-tech corporations, and financial service companies. The average median family income is a healthy $57,000. The median home sales price in Maricopa County, $213,000.
And Phoenix has grown to become the sixth largest city in the country.
That's it for this week's edition of "Local Lowdown". See the entire list of the 10 fastest-growing counties. Head on over to cnnmoney.com.
WILLIS: McMansions, those oversized homes that seem to be popping up all over the country. Well, they're not always popular. In fact, some neighbors are downright determined to keep those ginormous (ph) houses out of their town.
That's what's going on right now in Atlanta.
WILLIS (voice over): Drive through Atlanta's older neighborhoods, and they're hard to miss -- new houses, most of them big, and some the subject of controversy.
DORIS BETZ, ATLANTA RESIDENT: If you go down the streets and you see these out-of-scale, out-of-proportion homes to the craftsmen bungalows around it, it just looks like it doesn't belong. It's just not keeping with the integrity, the historic integrity.
DAVIS: Atlanta City Councilwoman Mary Norwood is leading the fight against so-called McMansions.
MARY NORWOOD, ATLANTA CITY COUNCILWOMAN: If you are the egregious example and you are three to four times the size of the house next door, that house can literally lose value because it is only worth the land. It becomes a tear-down. WILLIS: Norwood is trying to pass new regulations that would limit the size of houses, and she hopes would help maintain the character and look of Atlanta's signature neighborhoods.
But critics say the regulations won't work.
DAVID GREEN, ATLANTA ARCHITECT: If they make the changes that are proposed, it's going to become an incredibly complicated, complex process, that ultimately really won't have any effect on the way that we see the houses from the street.
WILLIS: The proposed regulations are complex, but they boil down to restricting the square footage and height of a new home, based on the size and elevation of the lot.
COOPER PIERCE, ATLANTA ARCHITECT: I think we have come up with recommendations that will limit that bulk, but still allow people, if they want to build a 3,000-square foot home or a 5,000-square foot home in an existing neighborhood.
WILLIS: But opponents say the regulations won't allow even modest two-story homes to be built on some lots. And some folks here say in order to bring families into established communities, larger houses are a necessity.
CINDY DAVIS, ATLANTA HOMEOWNER: People don't want to live in a small house anymore. People want to have a larger house, especially if it's more than one person living there, you know. This neighborhood traditionally had been a lot of single people, a lot of younger people, and that's changing. And the housing stock is changing with that.
WILLIS: Changes that could have a major impact on the look and feel of Atlanta's neighborhoods.
WILLIS: Those proposed regulations are still being debated in Atlanta. The earliest they could go into effect, May of this year.
And finally, those tips we promised you.
If you don't know the exact terms of your mortgage, well, you are not alone. Bankrate.com has this new poll out, and it's a little disturbing. They say three in 10 homeowners don't know what kind of loan they have.
But here's how to get those vital details.
First, if you have an adjustable rate mortgage, look for the Adjustable Rate Rider. Now, it's a one-page letter that should be in with your closing papers. Find the date when your rate is first scheduled to adjust and how frequently it will change.
Remember, your monthly payments could increase every year or even every month. Then look for the rate caps. They limit how much your interest rate can change. For the most part, your cap will limit your rate change at any one time to about two percentage points and a total of six percentage points over the life of the loan.
If you have a loan with no rate caps, hey, it is time to refinance and get a new loan. And if you can't find this paper, call your lender to get the details, or to answer any other questions you might have.
OPEN HOUSE will be back next week right here on CNN, and you can catch us on "HEADLINE NEWS" every Saturday and Sunday at 5:30 p.m. Eastern Time.
As always, we thank you for spending part of your Saturday with us.
Don't go anywhere. Your top stories are next in the CNN NEWSROOM.
Have a great weekend.
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