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Open House

Your Home's True Cost; Oil Prices and Their Effect on You and Your Family; Slashing Your Energy Bills

Aired June 28, 2008 - 09:30   ET

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

GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis, and this is OPEN HOUSE, the show that saves you money.
Coming up on today's program, well, you might think you're paying a lot for your house, but we are crunching the numbers, and it might be even worse than you think.

We're also talking oil prices and their effects on you and your family, and we'll help you slash your energy bills this summer.

We begin, though, with the state of the housing market. Existing home sales are up for the second time in 10 months, up two percent to be exact, but the median home sales price is down, down more than six percent year over year to $209,000. Joining me now to sort it all out is Greg McBride, he's senior financial analyst at bankrate.com.

Greg, great to see you.

GREG MCBRIDE, BANKRATE.COM: Great to be here. Thanks, Gerri.

WILLIS: All right, well let's go over some of these housing numbers for this week. More bad news -- new home sales down 2.5 percent, existing home sales, they looked like they were higher, but I mean, you know it wasn't that impressive. What are we to make of it?

MCBRIDE: Well, I think the big villain now is falling home prices. There are a lot of bargain hunters out there and they're either buying now or they're waiting for prices to fall further. Also, look at the fact that mortgage rates were up about half a percentage point in about a three-week span...

WILLIS: That's right.

MCBRIDE: That took some buying power away from the bargain hunters and into the past when mortgage rates go up, that tends to spurs people to action, but with home prices falling, a lot of those bargain hunters are not sitting back and saying hey, I'm just going to wait for the price to fall further to restore that buying power that higher mortgage rates took away from it.

WILLIS: Yeah, I think there are a lot of people trying to figure out when to jump in and when not and those higher mortgage prices are not helping anybody. Is there any light at the end of the tunnel? I know you're worried about foreclosures, but do you see any break in this negative news? MCBRIDE: Well again, there are some bargain hunters that are out there. This is also a good market for first-time home buyers, provided that you have the money for the down payment, because here's the thing, a lot of the impediment to move up buyer -- buying that bigger house in today's market is that they can't sell the one that they're in. That's not a worry for the first-time home buyer, but the hurdle they have to clear, they have to have money for the down payment.

WILLIS: Well, they have to have money for the down payment, but part of the problem is that these lenders are very stingy, right now. When is that climate going to ease?

MCBRIDE: Well, loans are still being made, and here are the three ingredients that you need. You need good credit, proof of income, and you need money for the down payment. If you're lacking any of those three, those are some big impediments to getting the deal done, but the deals that are getting done today are for borrowers that meet those qualifications.

WILLIS: Now, you have some interesting stuff to say about what happened with the Federal Reserve this week. The Federal Reserve standing pat on interest rates. It sounds like, you know, a non- story, if they're not doing anything, but you say, in fact, this is an important turn.

MCBRIDE: It really is. I mean, for the past nine months, the Fed has been cutting interest rates. This time they stayed on the sidelines, but what they did was they really signaled the shift from a falling rate environment to one where they're eventually going to raise interest rates. So as consumers, we need to take action now to protect ourselves for when rates inevitably rise.

WILLIS: What do I do, Greg?

MCBRIDE: Well, if you have an adjustment-rate mortgage, refinance into a fixed-rate loan. A lot of homeowners with ARM resets dodged a bullet in 2008, but if rates go up in 2009 or 2010, that could be a nasty surprise. If you have a home equity line of credit, many lenders will let you fix the rate on the portion that's outstanding, now's the time to do it because you can do it at 5.5 percent and not have to be paying 7.5 or eight percent a couple years down the road.

WILLIS: And rates could just be tracking higher, higher, higher for the rest of the year. I know a lot of people worried about that. Greg McBride, thank you for that. We appreciate your time, today.

We found another silver lining to the mortgage meltdown that we'd like to share with you. While most of the country is reeling from the housing bust and a record number of foreclosures, Habitat for Humanity is reaping the benefits and helping low-income families in the process.

CNN's Rusty Dornin has the story.

(BEGIN VIDEOTAPE)

ANITA HELLAM: This house is now in escrow, right now, we're about ready to close on it, as well as this house. It's in escrow.

RUSTY DORNIN, CNN CORRESPONDENT (voice over): Anita Hellam is snapping up houses as fast as she can in Modesto, California.

HELLAM: We're getting them for about 1/3 market value. The prices in this community have plummeted.

DORNIN: She may sound like a real estate speculator, but Hellam is the local director for Habitat for Humanity, a nonprofit that helps low-income families with affordable housing. From Modesto to Minneapolis, the deep dive in housing prices has enabled habitat to buy property beyond its wildest dreams.

HELLAM: We're getting these properties for about what it would cost us for a vacant piece of land.

DORNIN: Maria Corral is helping to dig a water line for her new home, a used house delivered by Habitat and cheaper than one that would have to be built from the ground up.

(on camera): Would you have been able to do this project with your house if the housing prices hadn't fallen so much in this area?

MARIA CORRAL, HOMEOWNER: (SPEAKING FOREIGN LANGUAGE)

HELLAM: She says I wouldn't have been able. This is something that wouldn't have been impossible.

If we had done this project two years ago, Maria wouldn't have been able to afford the property taxes.

BRIAN DALY, BUILDER: There you go. Slide them in there, yeah.

DORNIN (voice over): When new housing construction dried up, Brian Daly was forced to hang up his tool belt.

DALY: The jobs aren't out there like they used to be.

DORNIN: Then Anita Hellam hired him for $40,000 a year less. Construction crews willing to work for less and cheaper land, a winning combination for a charity eager to seize the moment in this market. Here, it's refurbishing former rental property.

(on camera): With the economic downturn, rents are cheaper, so people are able to upgrade housing, which leaves places like this empty and landlords often eager to dump the property.

(voice over): Creating yet another opportunity for Habitat to buy.

HELLAM: We're making sure electrical, plumbing is all current, reroofing...

DORNIN (on camera): But cheaper than you used to be able to do?

HELLAM: Oh, for not even 1/3 of what it would have cost us even a year and a half ago.

DORNIN (voice over): Hellam even has her eye on this, developers went broke before the subdivision was built, but the utilities are in.

(on camera): How much less would you pay now than you would a year and a half ago?

HELLAM: Well, a year and a half ago, these were completely out of my price range, they were $100,000 more than they are today, easily, per lot.

DORNIN (on camera): Transforming the nightmares of some into an American dream with a happy ending for others.

Rusty Dornin, CNN, Modesto, California.

(END VIDEOTAPE)

WILLIS: Well, at least one silver lining there. Coming up on OPEN HOUSE, do you know how much your home is worth? No, really. Factors you never thought to consider coming your way. Then, easing your pain at the pump -- driving suggestions to save you gallons upon gallons of gas, and of course, that means less money out of your wallet. Plus, solar systems for your house that will save you money year-round on your electric bills.

(COMMERCIAL BREAK)

WILLIS: Life in Honolulu, Hawaii, may look idyllic, but shipping costs are pushing the cost of bare necessities sky high. As the oil continues to rise, some families may find themselves priced right out of paradise.

CNN's Chris Lawrence has that story.

(BEGIN VIDEOTAPE)

CHRIS LAWRENCE, CNN CORRESPONDENT: Sun. Surf. Sand. Hawaii is blessed with a natural beauty, but there's a price for this paradise -- $7.19. That's what it costs to buy a half gallon of orange juice here. Or it'll get you one pack of American cheese slices. You'll need almost eight bucks for a box of cereal and well over that for a jar of peanut butter.

SUSAN OHAMADA, HAWAII RESIDENT: I just spent for a half gallon of milk $4.29.

LAWRENCE: Susan Ohamada is going broke shopping for a family of four.

OHAMADA: Kleenex. I bought Kleenex for $2.99 cents today -- $3 for a Kleenex and that was the sale price. LAWRENCE: Most of Hawaii's food is shipped in from the mainland, so it's generally more expensive. But the high cost of fuel has forced shippers to tack on huge surcharges which are passed along to the grocery store.

(on camera): What can Hawaiians do to have affordable food?

PROF. IRA ROHTER, UNIVERSITY OF HAWAII: You grow your own food. You may have noticed we can grow our own food in Hawaii.

LAWRENCE (voice over): As Professor Ira Rohter says good land is available on the island, but others say it's expensive. And you can't afford to grow celery and carrots on land that's $80,000 an acre. And since most farmers are on short-term leases, there's no real incentive to invest in technology that improves production.

Some shoppers have adapted, only buying what's in season.

CORRINE TANTOG, SHOPPER: I went to a nutrition class. That kind of helped, They tell you how to buy food when they're growing, it's cheaper.

LAWRENCE: Right now, a head of lettuce is $2 per pound, tomatoes are more than $6 a pound, a gallon of regular milk is $6.50, and forget the organic kind. It's nearly nine bucks.

DAVE OHAMADA, HAWAII RESIDENT: It's amazing how fuel has influenced everything, the price of everything going up. It's just ridiculous.

LAWRENCE (on camera): Even a loaf of bread is $5.50, and not the fancy, multi-oat grain, either -- old-fashioned white bread. And at this rate, there are going to be some families priced right out of paradise.

Chris Lawrence, CNN, Honolulu.

(END VIDEOTAPE)

WILLIS: Wow, $6.50 for a gallon of milk? That hurts. Well, Hawaiians aren't the only ones suffering with high prices. The high cost of gas is exploding family budgets across the country, and our next guest says where you live can make a big difference in how much it's impacting you. John Norquist is the president of the Congress for New Urbanism, and he's joining us now from Chicago.

Well, let's get right down to it. I think everybody knows location is important when picking a house, choosing a house, but you also want to think about the transportation costs, you say.

JOHN NORQUIST, CONGRESS FOR THE NEW URBANISM: That's right. The transportation factor has gotten much more important with the increase in the price of gasoline, so before people make an investment in a house, they need to factor that in. And so a lot of people are doing that. You can see it with the house price market is now changing. People that live in location-efficient neighborhoods are holding their value in their houses much more than those where there is a long commute.

WILLIS: Wow, that's impressive, just interesting how things are changing. We wanted to show our viewers an example of two suburbs and how the prices are changing and what their costs are. One, they're both in Georgia, first of all, they're suburbs of Atlanta, one is Decatur, the other is Dacula and you can see them here on the map. Decatur is about six miles from Atlanta, Dacula is about 38 miles out, so very big difference, obviously, in the commuting time, but John, tell us what's going on here, because these people face very different prices when it comes to commuting.

NORQUIST: Yeah, these numbers were calculated some time ago. So, now that the differential would be even greater, it'd be over $500 difference per month between Decatur and Dacula. And something else that I'd want to point out is that it's not just the distance, it's the way the town is built out. Decatur has a grid of streets, and most of the neighborhoods have convenient shopping so that if you want to go get a gallon of milk or something, you don't have to hop in the car. You can if you want to, but you can walk, your kids can walk and so forth.

And that really makes a difference, it cuts down the amount of driving. You can really see it dramatically with Atlanta Station, another neighborhood in Atlanta, that actually, the EPA calculated it, and the average person in Atlantic Station does 1/4 of the driving of the average person in the metro area. So, that's a big savings.

WILLIS: Big savings.

NORQUIST: For people who have...

WILLIS: Right, big savings. I just want to point out to our viewers, they were just seeing pictures of Atlantic Station, mixed-use development, as you said, residential right next to commercial and retail, it's all mixed up so that, yeah, you can just go down to the corner and get your milk, instead of popping in the car.

Let's make another comparison. I want to talk about the housing and transportation affordability index. This is this something that's online that you can actually tap into at htaindex.com. We want to show folks yet another comparison here, Raleigh/Durham, Chapel Hill, the research triangle in North Carolina, showing you here housing costs should be about 30 percent of your budget.

You see here, the yellow is the affordable area, the green is not affordable. Layer on transportation costs now for us, and you can see that even less of this area is affordable. You know, jumping up above 48 percent, those green areas.

What's going on here, John? Just tell us -- we don't have a ton of time left -- if you would, about why, you know, this transportation issue is so important.

NORQUIST: Well, what's happening is that the price of the house isn't the only thing that matters to a household budget. So, if you're living in a very, very inefficient location, those transportation costs are going to eat up your household budget and make it harder to do other things that you want to do.

WILLIS: John, great advice, interesting thoughts. We really appreciate your time, today.

Still ahead on OPEN HOUSE, a quick visit to "Consumer Reports," and we leave with all the answers and tips you need to save on gas this summer. And the average house uses about 12,000 kilowatts of electricity per year. We'll take you to one family's home that uses half that and we'll tell you how they do it.

(COMMERCIAL BREAK)

WILLIS: One of your biggest concerns this summer, no doubt, is saving money on gas, whether it's driving to work or getting your family away for a weekend, every gallon, every penny counts now more than ever. I stopped by "Consumer Reports" in Yonkers, New York, to get some tips from auto's managing editor, John Linkoff. Let's start with your tips on using GPS to map the best route to save gas.

(BEGIN VIDEOTAPE)

WILLIS: Hey John, lets start with your tips on using GPS to help you map the best route to save gas.

JOHN LINKOFF, CONSUMER REPORTS: Well definitely, Gerri. What you want to do is plan out your route in advance so that you know where you're going, you don't have any sudden surprises while you're on your trip. And you could also use ratings that we have on consumerreports.org to see which ones will show you gas stations along the way.

WILLIS: Oh, I love that. OK, slow down, you say, don't drive like a maniac.

LINKOFF: Definitely. Every time you go 10 miles-an-hour faster than 55, so 55 to 65 and 65 to 75, you're wasting five miles-per- gallon, overall.

WILLIS: So, that's an easy way to save gas, is simply to slow down. Let's talk about driving smoothly; you say no abrupt stops, you know, accelerate smoothly as well, correct?

LINKOFF: Definitely, you want to be easy on the throttle and easy on the gas. You use momentum, basically. So, what you do is you're easy on the gas when you're starting up, don't have a jackrabbit start and the same with the braking, don't slam on the brake at the end.

WILLIS: All right, so you say if you're not actually running the car, shut off the engine.

LINKOFF: Right, at 30 seconds or so, you're getting zero miles- per-hour, so if you get to the 30 seconds threshold or so, particularly if it's a lot of construction, bumper-to-bumper traffic, a bridge opening, for example. Turn it off, let it just be off with the windows open, because again, you're getting zero miles-per-hour when you're idling at stops.

WILLIS: Now, you have some great ideas for outside the car, as well. So, let's show some folks what you do once you get outside the car. Now, there are savings back here as well, correct?

LINKOFF: Definitely. First of all, what you want to do is take stuff off of the roof, get rid of the big pod, because that can hurt fuel economy between one to six miles-per-gallon, particularly on cars. So you take that stuff off, bring it down, and put it in the vehicle also...

WILLIS: One to six miles-per-gallon...

(CROSSTALK)

LINKOFF: Oh yeah, five here, 10 there, it's definitely savings. As well as take the bike rack off the car, even the little defector doesn't help. Use a bike rack that sort of like mounts on the hatch or on the trunk of the car and that'll take the bike off of the back, the vehicle's already blocking it, so you're not getting additional wind resistance.

WILLIS: So it's all about aerodynamics.

LINKOFF: Very much so.

WILLIS: Making sure you're completely wind resistant. All right, anything I can do with the exterior of the car here, that's going to make me spend less money on gas?

LINKOFF: Really you want to take off as much as the unaerodynamic features as possible. Take that stuff off the roof, for an SUV, as well. You're so much stuff up high, it raising the center of gravity. So take it, put it inside the vehicle, load it as far forward as possible.

(END VIDEOTAPE)

WILLIS: Great advice. Well, as always, if you have an idea on how to save money, send us an e-mail to openhouse@cnn.com. And if you'd like to check out this "Project Savings" again, check out our Web site, cnn.com/openhouse.

All this talk of record-high gas prices and America's fuel crisis, we'll have a special edition of "ISSUE #1," this Friday, July 4, focusing on the future of energy in this country. You can, of course, catch "ISSUE #1 every weekday at Noon Eastern, 9:00 Pacific right, here on CNN.

Running on the sun, embracing solar power to slash energy bills, that story next on OPEN HOUSE, the show that saves you money.

(COMMERCIAL BREAK)

WILLIS: Is your surging electric bill giving you a headache? One Arlington, Virginia, family says relief may come from the sun. Here's CNN's Jeanne Meserve.

(BEGIN VIDEOTAPE)

DAN REDMOND, SOLAR ENTHUSIAST: Looks like the corn bread is about ready.

JEANNE MESERVE, CNN HOMELAND SECURITY CORRESPONDENT (voice-over): Dan Redmond cooks lunch in his front yard using the power of the sun.

REDMOND: Tasty?

MESERVE (on camera): It's good.

REDMOND: Yeah.

MESERVE (voice over): A solar oven, just one way Redmond has drastically reduced his electric bill. It used to be about $150 a month.

REDMOND: Our bill this past month was $28.61, about half of which was taxes and the service charge.

MESERVE: But this reduction came at a very high price. The solar panels he installed on his roof cost about $25,000. They generate about half the power his house consumes, but will take years to pay for themselves. Redmond tracks their productivity on a monitor inside.

REDMOND: That's the sun working right then instantaneously. Isn't that cool?

MESERVE: When the sun is particularly bright and producing more electricity than the house needs, the electric meter actually runs backwards as the excess is pushed out to the power grid.

REDMOND: We're essentially a power production company here on our street.

MESERVE: The Redmond's have also whittled their bill by curtailing their use of electricity. Power gobbling appliances have been replaced with new energy star models. This year's investment, a more efficient air-conditioning unit. The clothes drier, which gobbled electricity year round, has been abandoned completely.

(on camera): And how much do you think it saves you?

REDMOND: It easily knocked off 15 percent to 20 percent off of our electricity load.

MESERVE: A small solar panel charges small electronics, other appliances are turned off or unplugged when not in use.

REDMOND: Right down in here.

MESERVE: The family is also cutting gasoline consumption by using an electric bike. They hope soon to buy a plug-in electric car. This is about much more than lower energy bills. Redmond says his real goal is a smaller energy footprint.

REDMOND: We don't live a frugal lifestyle. We're not on the edge where we feel like we're not getting all of our needs met. We're just making different decisions about how we live our life and what's important to us.

Jeanne Meserve, CNN, Arlington, Virginia

(END VIDEOTAPE)

WILLIS: Impressive stuff, but you know, you don't have to buy solar panels to save money on your energy bill. Here are some small energy saving changes that you can make, today. First, you could save up to $63 a year by washing your clothes with cold water. Remember, detergents are formulated for cold water and they get clothes just as clean, and only run full loads in the dish washer and the laundry machine.

Think twice about turning on that oven. Heating food in the microwave uses only 20 percent of the energy required by a full-sized oven, plus, the heat from the oven could put an added load on your air conditioner this summer. Better yet, dust off the crock pot.

And forget about pre-rinsing your dishes, all you're doing is wasting water. Also, think about installing aerators in your faucets. Now, this will save water and water heating fuel. Finally when you go to bed, put your computer to sleep, too.

OK now, before we go, we want to share with you the best money- saving tip from today's show. High gas prices are taking a toll on everybody, but there are steps you can take to save gas, and therefore, cash. One way to do it, go easy on the gas pedal. For every 10 miles-per-hour you slow down, you gain five miles-per-gallon, overall. And don't drive like a maniac, use the brake pedal more gently and gradually increase your speed.

You can hear much more about the impacts of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN.

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.