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Open House

Home Values; Electric Cars; Optimizing Gas Mileage; College Computer Needs

Aired August 16, 2008 - 09:30   ET

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

CHRISTINE ROMANS, CNN NEWS ANCHOR: Hello. Welcome to OPEN HOUSE, the show that saves you money. I'm Christine Romans in for Gerri Willis. Coming up, the future of fuel and what you can do in the meantime to ease your pain at the pump.
Plus, it's time for back-to-school shopping. What your kids really need is a computer, and what they can also do without. And we'll run down the rules for couples and their money.

But first, a quick check of your housing headlines. Median home prices fell 7.6 percent to $206,500 in the quarter of this year. Existing home sales jumped the most in markets experiencing the steepest price drops in places like California and Nevada.

All this fueled by record foreclosure filings up eight percent this month, versus June, up 55 percent from a year ago. Bank repossessions are up 183 percent year-over-year. And mortgage application volumes fell 1.5 percent last week as interest rates rose, meaning few people are trying to buy homes. The average for 30-year, fixed rate mortgage now 6.75 percent.

Joining us now to break it all done, Amy Bohutinsky from Zillow.com and Brad Inman of "Inman News."

Welcome to both of you. Amy I want to start with you first. Something really caught my attention this week, and that is the statistic that a lot of Americans think that their house price is the same or going up when, in fact, that might not be the case.

AMY BOHUTINSKY, ZILLOW.COM: Yeah, this was really surprising to us, in fact it was pretty shocking. We did a survey recently where we asked a couple thousand homeowners, what do you think is happening with the value of your home. And the majority of them said: I think it's increasing or staying the same, when the reality is 77 percent of U.S. homes have declined in value over the past year. So, that's a really big gap between the reality and homeowners' perception of what's happening at home.

ROMANS: Brad, this week we've heard a lot of forecast when the housing market will actually begin to stabilize. Alan Greenspan, in an interview with the "Wall Street Journal" saying 2009 at the earliest, but it's hard to predict. I mean, are we talking next year, the year after? When do you think the housing market can begin to at least stabilize?

BRAD INMAN, INMAN NEWS: Well, no one knows for sure. It's like predicting the weather. But it's interesting that the former chairman of the Fed, who was always a bull on the housing market said 2009. That's probably the most optimistic I've seen. We've got to work through a ton of foreclosures and we got some other outliers here that we have to worry about: going into recession, someone in the household losing a job and people facing foreclosure who have good mortgages, not bad mortgages. And in this whole psychology going on that I think is hurting the housing market, housing values have dropped, you decide to voluntarily walk away, facing foreclosure, so these three factors coming together. It's really hard to imagine 2009. Most experts are saying 2010 and even further out.

And then the real question once we hit bottom, wherever that is, how long will it stay on the bottom? It doesn't mean just when you reach the bottom you're going to see a recovery instantly. It rarely happens.

ROMANS: Let's talk about those foreclosures, because the numbers continue to be just staggering. RealtyTrac tracks all of these foreclosures and they said that they continue to rise, double digit, triple digit increases, depending on if you're measuring month-over- month or year-over-year. Over the past year, some 680,000 people have either abandoned or essentially been econvicted from their homes, the banks have taken possession of 680,000 properties.

Amy, that is remarkable and it started with subprime mortgages, but as Brad rightly points out, we're moving into prime loans and we're talking about potentially another half a million job losses, the traditional reasons why people lose their homes, we haven't even kind of faced all that, yet.

BOHUTINSKY: Yeah, you know, a leading indicator into foreclosures is negative equity and Zillow put some data out this week that shows that one in three homeowners who bought over the past five years is now underwater on their mortgage. For people who bought in 2006, when many markets peaked, it's 45 percent of peoples.

ROMANS: And let's be certain what that means. That means that you owe more on the mortgage rather than the house is even worth.

BOHUTINSKY: Yea, exactly. You owe more on the mortgage than your home is currently worth. And this is moving into the prime lenders, as you mentioned. There are people, a couple of years ago, with good credit who put down 10 percent or 15 percent on a home, but they live in these markets in southern California and central California, in Florida, where home values have dropped 30 percent to 40 percent since the peak. So, they have lost that down payment and now they're underwater and that's a really serious situation.

ROMANS: Brad, let's talk about the people now who are looking at the housing market and saying, listen, I've got money set aside, I don't have another house to sell, maybe first-time home buyers. I'm hearing anecdotally that some people are having trouble getting a loan. Is that the case?

INMAN: You know, three years ago if you could fog a mirror, you could get a mortgage, today you got to be a marathon runner to get a mortgage. It's really tight, credit is very, very tight. You got to have a sensible down payment, you got to have perfect credit. And this credit squeeze, which is really going on, I mean, is really affecting the market. But if someone that does have a down payment, they do have good credit, they have income, the inventory is almost five times what it was just three years ago. So, your choices are unlimited.

And if you could balance between what your rent payment is, what a mortgage is, then it's better to buy than rent, you can get a 15-year loan, in effect, from the government, interest free through this new tax credit. You can write off your mortgage, your property taxes, there's a big, government subsidy. So, for people that can pencil it, it makes more sense to buy and that mortgage payment's less than renting, there's a lot of options for the buyers. But there's just very few of those right now that are qualified with the credit squeeze.

ROMANS: And I suppose that if you're a seller, you're really hoping that one of those qualified people is going to be your buyer. Brand Inman, "Inman News," thank you so much. Amy Bohutinsky, Zillow.com. Thank you, both of you, for join us today.

A look now at some other issue No. 1 headlines affecting your money this week. Inflation, rising at the fastest rate in 17 years, up 5.6 percent from last July. Now, unless your income and assets are growing at the same rate, you're likely falling behind. Historically, inflation usually runs around three percent.

And news on the job front, the number of out of work Americans who signed up for jobless benefits fell slightly from a six-year high, still 450,000 people ling up for the first time.

Lots more ahead that will save you money. We'll check our gas gauge, Taking a look at the future of fuel and how you can get the most out of every last drop of your gasoline.

Plus, we're talking computers. What every student needs to know and what most can go without.

And a money mantra for couples. Listen up, we might just save your relationship.

(COMMERCIAL BREAK)

ROMANS: It wasn't that long ago that the idea of electric cars on the mass market simply didn't exist. Now, most major auto makers are competing to get theirs on the market first. CNN's Deborah Feyerick has more on the race to the future.

(BEGIN VIDEOTAPE)

DEBORAH FEYERICK, CNN CORRESPONDENT, (voice-over): This is not just a car, it's perhaps the future.

MICHAEL SIMCOE, GM NORTH AMERICA DESIGN: The design that's below these covers is absolutely the design that we've taken to the marketplace. And I'll give you a little sneak peek.

FEYERICK: While much about GM's electric car is under wraps, the creator's enthusiasm certainly is not.

(on camera): So you can't show the interior of the car, but how's the driving experience different from a normal car?

TIM GREIG, VOLT DESIGN MANAGER: Oh, it's totally different. In fact, I tell people, I got religion when I drove an electric vehicle for the first time.

UNIDENTIFIED FEMALE: Ladies and gentlemen, the 2007 Chevrolet Volt Concept.

FEYERICK (voice over): Chevrolet unveiled its demo, called the Volt, last year with the promise the car would be ready by 2010. The competition for electrical cars supremacy is so intense Chevrolet has taken the unusual step of designing the car based on a battery still being developed.

(on camera): This has to last a very long time for this car to succeed.

DENISE GRAY, DIRECTOR, GM BATTERY ENGINEERING: Absolutely. And it's one of the parameters when it comes to looking at (INAUDIBLE) is the life of a battery, can it withstand cycling being used going from empty to full, from full to empty, can it handle all the temperatures, hot temperatures down in Phoenix, Arizona, cold temperatures up in the northern Canada.

FEYERICK (voice over): Back in the '90s, GM tried and failed with its EV1 electric car. Technology, they say, wasn't a good enough. The new lithium ion battery is a third the size of the EV1, it's expected to get 40 miles a charge, plus there's a gas tank to charge the battery for longer drives.

TONY PASAWATZ, VOLT ENGINEER: So we can go hundreds of miles on a charge and with your back-up gas tank system.

FEYERICK: GM says every curb, every corner has been shaved to improve air flow so the car goes farther.

SIMCOE: Even down to, you know, one or two millimeters can affect the range of the vehicle.

FEYERICK: The Chevrolet Volt takes approximately six hours to charge and can be plugged in at night when electricity is relatively cheap. Instead of roughly $4 per a gallon, it will cost about 50 cents to drive the same distance.

(on camera): GM has a lot riding on this. The company's in trouble and they need this car to be successful. Really the potential deal breaker is the battery. GM wants a warranty of 10 years or 150,000 miles. So, they're testing the battery 24/7 to make sure they get it right.

Deborah Feyerick, CNN, New York.

(END VIDEOTAPE)

ROMANS: Well, for right now, anyway, most of us have to depend on the good old fashioned gas pump. And while prices are down, they're still not pretty. This month, "Money" has a special look at how to cure the gas mileage obsession and get the fuel efficient car that's right for you. CNNmoney.com auto writer, Peter Valdes-Dapena, contributed to that article.

Welcome to the program.

PETER VALDES-DAPENA, CNNMONEY.COM: How are you?

ROMANS: All right, I need a conventional car, I'm not ready for electric, I'm not ready for anything. I need the conventional car with the best fuel efficiency. What do I do?

VALDES-DAPENA: Well, that's going to be tough because right now, everybody else is shopping for a car wants the same thing you do, everybody is looking for fuel economy. So, the same tips I usually give folks for how to shop for a car apply here, but you really got to be a little bit more aggressive. Look for cars that, if you can, are still selling for under their sticker price. Because if you've got a car selling over sticker price, you're probably paying more than you're going to get back in fuel economy.

Go to a Web site like CarsDirect.com, they have actual prices that they've prenegotiated. You can buy a car for that price. But, don't just buy it. Take that price, call or e-mail dealers in your area. This is, of course, after you've test driven the car and everything else and you know what you want and get quotes and get them competing against each other to get that business from you and get the lowest price you can.

ROMANS: How about buying used? There's some pitfalls in buying -- there's some kind of cars to buy used, that right now is not the time to do it.

VALDES-DAPENA: Well, here's a great example. The idea with buying the used car is normally when you buy a new car and you want good resale value. If you're buying a used car, you're looking for a car that has weak resale value so you can to take advantage of that, but that's still a good car. For example, you might be shopping for Toyota Matrix, which is a little wagon, gets great fuel economy, it has great resale value.

Well, how about a Pontiac Vibe, which is the exact same car with a different grill on it, but a Pontiac name, because of that GM name, unfortunately, the resale value is not so good, but it's the same car, that works to your advantage. You're getting that fuel economy and that quality without paying a premium price for it. Ford Focus is another example, Hyundai Atlanta, is another example of reliable cars with good fuel economy that aren't the same cars everybody else is looking at. ROMANS: I want to a hybrid. I want to try a hybrid. Is now the time to try a hybrid? I know there are waiting lists, you can't be picky about the color, you might not be able to get it on the coast or in Texas.

VALDES-DAPENA: Right, yeah. It's gotten so bad that used Toyota Priuses now sell for more than new ones, because they are so hard to find new, people are going used. It's absolutely, I'm sorry, but it's not a good time to buy a hybrid car. There are waiting lists. Yeah, the fuel economy is great, but if you can -- look, gas prices are starting to come down a little bit now, the market might soften a little bit. I would hold on if you really want a hybrid car.

ROMANS: All right, Peter Valdes-Depena from CNNMoney.com. Thank you for the advice, sir.

Still ahead on OPEN HOUSE, couples and money. A step-by-step checklist to make sure your finances are in order.

And we're going to talk school supplies. What the kids need in a computer and what they can really go without, important advice here. We are OPEN HOUSE, the show that saves you money.

(COMMERCIAL BREAK)

ROMANS: Couples and money go together, well, often like oil and water. Money is the No. 1 cause of stress and disagreement in relationships, but our next guest says, hey, you can make it work. In fact, you need to, marriage depends on it in some cases. Alison Brower is executive editor of "Redbook" magazine and joins us, here. Welcome to the program.

ALISON BROWER, REDBOOK MAGAZINE: Thanks.

ROMANS: No. 1, you've got to get a grip on what you're spending, what your debt is, you've got to know the situation, first and foremost?

BROWER: That's right. For couples, the important thing is to set a budget, both for your day-to-day living and your long-term goals because it's thinking about those long-term goals, the house or the big vacation, or the retirement savings that helps to motivate you to not maybe buy the extra latte or all the things that send the cash right out of your wallet.

ROMANS: Well, the one thing sitting -- when you fell in love the first time, you didn't imagine you're going to sit across from each other at the kitchen table and go over who, you know, who's got the cable bill and who spending more lattes, but it's important.

BROWER: It's very important and as in other areas, financial opposites do attract and you know, spenders tend to marry savors and worriers tend to marry those who are more sort of free floating about it.

ROMANS: Well, this is why it becomes a marital disagreement. BROWER: That's right.

ROMANS: Because, you know, you second guess each other and it can start to be a thorn in your side. Mistake No. 2 for people to make sure they don't commit we've been tapping out 401(k) to pay the bills, don't do it.

BROWER: You hear a lot of stories about people doing this. It's really a last resort. You should consider debt counseling or credit counseling before you would do that because tapping into your 401(k) is draining away your future, you're going to need that money later in life and also, huge taxes and penalties associated with taking out that money. So, it really is only a very last resort. You should strip your spending to the bone, even look for other ways to add to your income before you dip into 401(k).

ROMANS: I've got credit cards, he's got credit cards, we have a common credit cards, there's an awful lot of credit cards going on. Don't let those slide and make sure you know where each other stands.

BROWER: That's right. It's really good to have maybe one credit card that you use for monthly expenses that you always pay off and one that you plan to use to buy the refrigerator or those long-term purchases that you're planning to pay over several months. More than that, it's hard to keep track of and you've got these different due dates, it's easy to end up getting them mixed up, it's easy to end up spending more than you can really afford.

You don't want to have those late payments. Fees can be $30 or $40 and interest rate can go right up. And you know, and it stays at the higher rate once you've had a couple late payments. So...

ROMANS: Don't only make minimum payment. Don't neglect what the due date is. Don't have too many cards. And if one or the other in the relationship does, that can cause -- that's where disharmony comes.

BROWER: The minimum payment is an important point, because if you're only making the minimum payment, people convince themselves, oh, I'm paying it off -- paying it off, but you can extend the amount of time you owe by decades if you're only pay the minimum. And if you just double the minimum you can cut it by 10 years or more. So, you really want to pay as much as you possibly can toward those balances.

ROMANS: And then you find out that your dearly beloved is taking out cash advances out on the credit card and then you say, what are those for and do you know the fees of those cash advances? No cash advance, that's another big mistake.

BROWER: Huge fees, very high interest rate. That money can end up costing you three or four times the cash that you got just over the course of a year, it could be a 300 percent loss. So, it's a really poor way to get cash. It's the worst way to get cash.

ROMANS: I don't want to leave the impression that all debt is bad, because some debt is good, there's good mortgage debt if you have the right kind of mortgage that fits you and your life, there's even good credit card debt, you know, if you're using it the right way, you know, for a convenience. And student loan debt sometimes can be good.

BROWER: Mortgages and student loans good debt is anything that's an investment in your future that can add to your assets or income and obviously most credit card debt does not fall into at that category. But people who use credit cards wisely to extend certain large ticket items, there are people that definitely do that and make it work to their advantage. Unfortunately, especially, at times like this far too many of us end up really deep in the hole and you've got to just watch it.

ROMANS: I think it's an incredible advice, Alice, and I think it's important for people to really take to heart especially since it's better to do it and just better for your life to do it now than when you're sitting across the table with a divorce lawyer trying to go through who's got what credit cards and how to divvy up the debt. Alison Brower, thank you so much, "Redbook," thanks.

Up next, stuff the duffels and load up that car. It's time to take the kids back to school. We've got all of the computer essentials, next.

(COMMERCIAL BREAK)

ROMANS: Every kid wants the fastest, sleekest, most powerful computer, but just how much machine do they really need? Joining us now to breakdown the right laptops and desktops by college major, Dan Costa, the consumer electronics editor at "PC Magazine."

Let's talk about, first, sending the kid to college, how much money do you have to spend? You could spend from you know, $400 to $3,000.

CAN COSTA, PC MAGAZINE: There's a wide variety. I mean, the good news is that you -- for very little money you can get your kid to school and they'll have pretty much everything that they need.

ROMANS: What are the bare minimums I need in terms of size and power and all the hardware and software?

COSTA: First thing you're going to do, you're going to choose between a laptop and desktop. I generally tell parents they're going to want to get their kids a laptop. Being in college these days is a mobile experience, kids move around all the time. They want to take the PC everywhere they go, I think the thing to do is get them laptop.

ROMANS: Mac or PC?

COSTA: Mac or PC, you could go either way. I think the best thing to do is actually call the school and a little bit of it is determined by what your major is. If you're going into design, if you're going to be going into video production, probably going to want to start off with a Macintosh. A lot of business majors have proprietary software that's only work on the PC. So, it really depends on your major.

ROMANS: So right, as around at the school. Student discounts, don't forget those. COSTA: Absolutely, every major vendor offers student discounts. You can buy through the college stores, but if you go to the Web site, the HP Web site, drill down through, you'll see they have special deals for students, could be free shipping, could be an extra two gigabytes of ram. There's all sorts of student discounts out there.

ROMANS: If I don't want my kid watching movies and downloading music and doing all this stuff when he should be studying, what are these net books?

COSTA: Net books are a relatively new category of very affordable notebook computers. They don't have all the power of like a full fledged notebook, but the bonus is they're about three pounds, they get you online, they get you on your e-mail, they let you do your word processing, basically everything you need and they are so light and portable that you can carry them around all throughout the day and every class you go to.

ROMANS: All right, so if you've got a kid out there who's an aspiring journalism major, what kind of computer should you getting for your kid who is a journalism major?

COSTA: Well, as a journalist myself, the system that we just tested in the lab, the MIS Wind is one of these net books, it's a very small form factor, it runs Windows XP, not Window's Vista, but it's less than three pounds and you can carry it...

ROMANS: Four-hundred and fifty bucks is pretty decent price when you're talking about five figures for some of these. So, it might not be great for watching movies, but it's the kind of thing that you can pull around with you if you're on assignment or running from class to class.

COSTA: Right. Word-processing, getting information off the Web, and filing your stories.

ROMANS: I'm assuming the computer major is going to need something a little more sophisticated.

COSTA: Computer majors, it depends. I mean, right now, the thing I would get that is hottest, geekiest computer that computer majors are going to want, it's going to be and ASUS eeePC.

ROMANS: Oh, it sounds hot and geeky.

COSTA: It's so geeky. And part of the thing that makes it geeky is runs Linux, not windows. Linux is something that you can actually dig your teeth into a little bit...

ROMANS: Literally a whole other language for those guys. Let's talk about liberal arts, you say an Apple MacBook, 13 inch, about $1,300, this is a good kind of all around computer.

COSTA: You know, it's a little more expensive than a lot of the PC laptops that are out there, but this is one those laptops that pretty much does it all. If you get your kid one of these, they'll be able to work in just about any class, it's very well equipped and it uses the Mac OS, which is popular with a lot of schools.

ROMANS: A graphics or film major, some in the visual arts, they're going to need a different kind of computer, as well?

COSTA: That's where you might want to go towards the desktop route, because they're going to get a bigger monitor, it's going to be a higher quality, you're going to get a bigger display to work on, get a little bit more processing power. That's where I would go with something like the i-Mac.

ROMANS: Is this -- I mean, do you think the computer is the No. 1 purchase for the kid -- I mean, especially if you're a freshman off to college, this is the big ticket item, this is the think you really got to spend some time deciding what to get.

COSTA: It probably is worth getting most kids a new -- depending on what PC they're using now, but going to school, you're going to want them to have the latest equipment, it's going to be more reliable than probably what they're using right now.

ROMANS: All right, Dan Costa, "PC Magazine," I think you just saved us a few bucks. Thanks, Dan.

For more on how the news of the week affects your bottom line, tune into YOUR MONEY, Saturday at 1:00 p.m. Eastern, Sunday at 3:00, right here on CNN.

We'll see you back here next week. But up next, your latest headlines in the CNN NEWSROOM.