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Open House

Despite Economy, Housing Market Slowing; Raising The Value Of Your Home; Good Credit Report Vital Before Applying For A Loan; Holiday Decorating On A Budget Quickly

Aired December 03, 2005 - 09:30   ET

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

TONY HARRIS, CNN ANCHOR: Now in the news, in Pakistan, survivors of October's massive earthquake now face life-threatening risks from the weather. Doctors warn that winter in the Kashmir mountains is helping spread pneumonia and other diseases among the more than 3 million people left homeless. Aid workers fear that without adequate food and shelter, a second wave of deaths will sweep through the ravaged areas.
Is it a new sign that Brad Pitt and Angelina Jolie are gearing up to tie the knot? Pitt has filed legal papers in Los Angeles to adopt Jolie's two children. His publicist says the children will go by the hyphenated last name of Jolie-Pitt. Jolie adopted the kids from Cambodia and Ethiopia.

Just ahead, how to qualify for the loan you need by boosting your credit score. Gerri Willis explains how in today's "OPEN HOUSE," beginning right now.

GERRI WILLIS, CNN ANCHOR: With stock markets roaring towards Dow 11,000, near a five-year high, and the latest outlook on jobs is strong, and President Bush is touting the economy. So why is the housing market slowing down?

Good morning, I'm Gerri Willis. Today on OPEN HOUSE, we'll tell you what's going on, the good news and the bad news.

We'll also look at what you can do to improve your credit rating.

But first, the housing market.

Joining me is Mark Zandy, chief economist for Moodyseconomy.com.

Mark, welcome.

MARK ZANDY, CHIEF ECONOMIST, MOODYSECONOMY.COM: It's good to be with you, Gerri.

WILLIS: You know, I think people out there are concerned, they're worried, and they're wondering, what is your overall outlook? Because, look, your outlook goes to people all over the industry. The professionals look at it.

ZANDY: Well, the economy's fine. We are creating a lot of jobs, but, of course, all that brings is higher interest rates, and the higher rates are going to be very hard on the housing market. And I do think housing is peaking and will be measurably weaker a year from now.

WILLIS: I know a lot of people think that a slowdown is really going on here, but when will a slowdown for real estate affect prices?

ZANDY: Well, I think that will be most evident in the spring. Right now, we're starting to see inventories of unsold homes begin to build. Applications for mortgages to purchase a home are beginning to decline. So we'll see sales weaken, but it won't be really until the spring that sellers give up and start cutting prices on their homes.

WILLIS: Well, let's look more specifically at your outlook, city by city. I know you're predicting a downturn for some 16 markets across the country, many of them in California on the West Coast. What's the story there?

ZANDY: Well, there we've seen a significant increase in pricing over the past several years. Affordability has collapsed, and as interest rates begin to push up even higher, for -- it's just become completely unaffordable for entry-level buyers. Moreover, there's a significant sort of pickup in demand for investors recently, and they're going to be finding it very difficult to continue buying as the interest rates rise.

So that market is -- the California markets, in particular, are going to be very sensitive to these rising interest rates.

WILLIS: San Diego, Santa Ana, Riverside, Los Angeles, you're really looking at a lot of cities in Southern California that are affected. How far will prices fall?

ZANDY: You know, I think we'll see peak-to-trough declines in prices of 10, 15 percent, under reasonable interest rate assumptions. So suppose interest rates rise a percentage point between now and the spring, I think we'll see 10 to 15 percent declines in those markets.

WILLIS: But you're saying peak to trough, and, you know, those markets have gone up dramatically. So if you were to look at a chart of these prices over time, the impact isn't as dramatic as it first sounds, right?

ZANDY: Yes, absolutely right. If you bought in three, four years ago, you know, you've enjoyed a doubling in prices. So 10, 15 percent isn't going to mean a whole lot to you. It is going to mean a lot to those people who have bought in in the last six, 12, 18 months, because, for them...

WILLIS: Right.

ZANDY: ... this is going to be a heartache, yes.

WILLIS: Before we go to the East Coast, let's talk about Vegas quickly. Now, here's a market, I'm telling you, it's been on fire, but you say it will probably be hit the hardest.

ZANDY: Yes, it's a very speculative market. And a lot of investor demand. And we're now starting to see a lot of building, condominium towers going up. And with that increased supply, in combination with a lack of affordability and higher interest rates, I really do believe we're going to see some very significant price declines in that particular market.

WILLIS: All right, let's go to the East Coast and talk about two areas. The Boston area, which is going have some problems, and then Florida, which it doesn't seem like you believe Florida's really going to get hit by a downturn.

ZANDY: Well, I think the problems in Florida are going to be more pronounced as we make our way into 2007. It's going to take a little bit longer for the problems there to develop. But I do think the condominium markets along the coast in Florida, everywhere from Miami up the East Coast to Jacksonville and up the West Coast to Tampa, I really think those markets are highly speculative and at very significant risk. But it's going to take a little longer for those markets to correct.

The Boston market already appears to be correcting, if you listen to brokers and realtors in that area -- part of the country. They're already starting to say that prices are coming down, that sellers are slashing prices. So that market is already beginning to correct.

WILLIS: All right. Well, you know, Mark, I could go on and on, but we're out of time. Thanks for being with us.

ZANDY: It was a pleasure. Thank you.

WILLIS: Now, if you have the right strategies, no matter the market, you can help boost your home's value.

Joining me now from Salt Lake City, Utah, is Sid Davis. He wrote the book "Survival Guide for Buying a Home."

Sid, welcome.

SID DAVIS, AUTHOR, "SURVIVAL GUIDE FOR BUYING A HOME": How are you?

WILLIS: I'm great. You know, we've been talking a lot about some of the markets that are the tippiest, the ones that have gone up the most. But there are a lot of markets out there that will do very well over the next couple of years. How do you know which kind of market you're in?

DAVIS: Well, that's determined mostly by the days on market a home is. In other words, if you live in a neighborhood, and the homes are selling in two to three weeks, and all of a sudden they start selling in a month, six weeks, and two months, you know the market is slowing down. And conversely, if homes start selling fast, in a week or so, then you know your market's heating up.

WILLIS: Sid, where do I get those numbers?

DAVIS: The MLS in all the cities have those numbers on their listings. WILLIS: I'll probably have to call a real estate agent to get it, though, right?

DAVIS: Any real estate agent will be happy to give you those numbers for your neighborhood.

WILLIS: What about financial moves that I can take now? Is there -- should I swap into a new mortgage? What should I do financially to protect myself?

DAVIS: Well, the biggest problem are those people who used the -- or bought the interest-only mortgages. They go for about five or 10 years, and all of a sudden you hit the end of the leash. At this point, then you've got your full purchase price amortized over 20 years or 25 years.

WILLIS: And that can be pretty scary.

DAVIS: It can, especially if you qualified for your loan, you had a 40 percent ratio. In other words, that means that if 40 percent of your income goes to your house payment, but you pay 10 years' interest only, and all of a sudden you're -- everything is compressed into 20 years, that means you could end up paying 60 percent of your income on your house payment, and that can get pretty ugly quick.

WILLIS: It's really time for those people to swap into something else, a 30-year fixed rate mortgage. Shouldn't they do it sooner rather than later, with the direction of interest rates?

DAVIS: Well, if I had an interest-only loan, those are usually 30-year loans, a fixed interest rate. But at the end of 10 years, they convert to amortization, and the payment is a lot higher. But if I had one of those, rather than incur the costs of refinancing, I would just pay $150 or an extra $200 a month on that loan and start amortizing, building equity.

WILLIS: All right. You also say this is not a time to over- improve your house. But how do you know what you're doing is too much?

DAVIS: Well, you need to look at the neighborhood values. In other words, if everybody in your neighborhood has plastic counters or other type of cheaper counters, you don't want to put in granite, because you won't get your money out. If you love your kitchen, but it's fairly recent, you don't want to spend $30 tearing it out just to be trendy.

WILLIS: Right, OK.

DAVIS: In other words, you don't want to put any improvements into your home that you're not going to get out.

WILLIS: Home equity loan, or line of credit? What's better right now?

DAVIS: I like home equity loans, because the costs are cheap on those, and you can pay them down yet keep them there active. In case you need some money for something, you can tap into them. And -- but the downturn on those is, is that the interest rate continues to go up. They'll go up also, and so your monthly payment can increase also.

WILLIS: Slippery territory out there, Sid. Thanks for helping us figure it out.

DAVIS: Yes, it's good to be here.

WILLIS: Coming up on OPEN HOUSE, improve your credit score, lower your loan payments. We'll show you how.

And later, lights, camera, decorate. We'll transform our set for Christmas and show you ideas you just might want to use in your own home.

But first, your tip of the day.

(BEGIN VIDEO CLIP)

WILLIS: Closing costs down, title fees, appraisal fees, document preparation fees. Sealing the deal on your home can really add up.

But you can curb those costs. Get a good-faith estimate. All lenders are required to give you an estimate of your closing costs within three days after you apply for a loan. While it's no guarantee, it will give you an idea of how much you'll be expected to shell out.

Question all the fees. Make sure you know what each item is, and whether it's required.

And don't be afraid to ask for a reasonable cost break. You may be able to negotiate a better price on some items.

So get an estimate, and always ask questions.

That's your tip of the day.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

WILLIS: Looking for a mortgage, a car loan, or any other kind of credit? There's a law on the books to make sure you get the best rate possible.

But there's a problem. Not all of it is being enforced, and that's despite promises from both Democrats and Republicans.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): That was two years ago, December 2003, and at least in some ways, it's no fairer today than it was then. At the time, Congress passed, and President Bush signed, the so-called Fair and Accurate Credit Transactions Act.

Among other things, it was supposed to require banks and other lenders to tell loan applicants when bad credit ratings automatically trigger higher loan payments.

EDMUND MIERZWINSKI, U.S. PUBLIC INTEREST RESEARCH GROUP: (INAUDIBLE).

WILLIS: This week, "Washington Post" real estate columnist Ken Harny (ph) agreed, writing that the current way of setting an interest rate "is not necessarily correct pricing. The systems are blind to botched information sitting in consumers' files, a situation several national studies have documented as commonplace."

Under the 2003 law, the Federal Reserve and the Federal Trade Commission were supposed to impose a notification system on banks. The FTC repeatedly declined CNN OPEN HOUSE's request for an update. But, according to "The Washington Post," an FTC attorney says it's working on the project, and there is no target date.

That, in turn, has consumer advocates worrying that the plan could be watered down.

MIERZWINSKI: (INAUDIBLE).

WILLIS: Bottom line, make sure your credit report is clear of any errors before you apply for a loan.

(END VIDEOTAPE)

WILLIS: OK, so you can't rely on that lender for any help. What can you do?

Allen Fishbein is director of credit and housing policy with the Consumer Federation of America, and he's joining us from Washington.

Allen, welcome.

ALLEN FISHBEIN, DIRECTOR OF CREDIT AND HOUSING POLICY, CONSUMER FEDERATION OF AMERICA: Pleasure to be here.

WILLIS: So let's talk about, how do you know if you're actually getting a good rate?

FISHBEIN: Well, I think what consumers have to learn more about is their credit score. They need to know how the industry views their credit profile, and by arming themselves with that data, it enables them to shop for the best possible rate.

WILLIS: Right. You know, we talk about credit scores a lot, but we seldom say, what is the good score? What are the best numbers to have to get the best possible rates?

FISHBEIN: Well, scores range. They're a statistical number and an attempt to compute the likelihood of repayment of debt by an individual consumer. And they can range anywhere from 300 being a low score to all the way up to 850. But really, the score range depends on the type of credit score model that's being used, and there are a number of different scoring models that are out in the marketplace.

WILLIS: OK. It's very technical, actually. But let's talk about what you can do to improve your credit score.

FISHBEIN: Well, first of all, borrowers have to look at their credit score, and we encourage people to regularly check in and find out what their score is, and...

WILLIS: And once you do, Allen, and you find it's, you know, 300, what can you do to make it better?

FISHBEIN: Well, you have to understand that, first of all, a low score means you're likely to pay more for credit if a creditor is willing to give you credit at all.

WILLIS: Right.

FISHBEIN: So that's the first step. And then secondly, there are a number of steps that consumers can take to try to improve their credit score...

WILLIS: Like?

FISHBEIN: ... for whatever level it is.

One is to keep their credit payments current. And if they've fallen behind on payments, try to bring them up and make them current. And the quicker they do that, the more that will get reflected in their score.

Also, it's important for consumers to keep a lower balance. Don't max out on your credit cards and other consumer lines of credit that you have. The lower the ratio of your outstanding credit to the total lines of credit you have...

WILLIS: Right.

FISHBEIN: ... the higher your score is likely to be.

WILLIS: You know, Allen, this is a little more complicated than you're making it sound, because a lot of people take steps that they think is going to help their credit, and it actually makes it worse. What are some of the things you should avoid doing?

FISHBEIN: Well, one of my favorite stories, of course, is if consumers decide, I'm going to increase my credit score by getting rid of some of my lines of credit. Well, that may not...

WILLIS: Closing down a credit card, for example?

FISHBEIN: That's right, cutting them up. That may not increase your score, at least right away, particularly if the ratio of the outstanding debt you have at that time goes up because your amount of... WILLIS: Right.

FISHBEIN: ... lines of credit have gone down.

So consumers have to be very careful about that. If they want to close down their lines of credit, it also be accompanied by paying down some of the outstanding debt they have.

WILLIS: One of the big keys here too is that sometimes it's not a mistake you made, sometimes it's a mistake the credit bureau made. And I think people really have to be on guard for mistakes that are introduced their credit histories by somebody else entirely.

FISHBEIN: Absolutely. And the chances of that happening are greater now than ever. And they really have to check, not just one, but probably the three major credit reporting agencies, to find out what their credit profile looks like.

Now, you can get copies of your credit history for free once a year, but you do have to pay to get a copy of your credit score. And that could cost you $8 or $9 per credit reporting bureau.

WILLIS: And it might be the best $8 or $9 that you ever spent.

Allen Fishbein, thanks for being with us today.

FISHBEIN: A pleasure to be here. Bye-bye.

WILLIS: Next on OPEN HOUSE, no halls or boughs of holly or even mistletoe, for that matter. But we're decking out our set for Christmas. We'll show you the latest in Christmas designs.

But first, here are the mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: Welcome back to OPEN HOUSE.

The holidays will be here soon, but between shopping and doing your regular chores, you may have no time to decorate.

Here to help is Stephen Saint-Onge, interior designer.

It's great to see you.

STEPHEN SAINT-ONGE, DESIGNER: Happy holidays.

WILLIS: I have to say, thanks for doing the set. It's fabulous.

SAINT-ONGE: It's fun. You know, we don't have a lot of room to decorate, but it's -- you know, we did it quickly, and the whole idea is, that's what people can do at home.

(CROSSTALK)

WILLIS: I'm telling you, I need timesavers, because I don't have time to do this either.

SAINT-ONGE: Well, think about it. I mean, people feel the pressure of opening up their whole house to people, and they have to decorate every room. You don't have to do it. Focus on one room, like your family room. You know, the fireplace, maybe the mantle gets decorated.

But think about simple things you can do that will save you time in the end. I mean, look at the things that we have out here today. I mean, simple things that will be creative, stylish, and festive.

WILLIS: And you don't have to go crazy, obviously.

So let's talk trends, because I know a lot of people out there think, Gosh, I want to know what the hot colors are this year. What am I looking at? You've not done the traditional red and green here.

SAINT-ONGE: I decided...

WILLIS: Let's go ...

SAINT-ONGE: ... chocolate was a big color this season, this past year, and it's going into the new year. Warm browns and things like that are really key. And I think for the holidays, it's a sophisticated look for the holidays. But yet there are accents that are warm and inviting.

I mean, you see the colors...

WILLIS: Right.

SAINT-ONGE: ... that we have here, which I think are really key, that, keep it away from the traditional sense...

WILLIS: Right.

SAINT-ONGE: ... but give it a whole new look for the 21st century.

WILLIS: I think the tree is great. Now, are you doing anything special here that we can take note of and reproduce in our own houses?

SAINT-ONGE: Well, normally, I would do a real tree, because to me, the smell of a real tree is great. The idea of actually having a bare tree with lights, normally I would do amber lights on a dimmer. I love the idea of putting lights on dimmers, because that's really a hot thing, is to create the environment with lighting is so key.

So definitely doing a tree with the ability to have people come over to your house and do a tree-trimming party is a great timesaver. They bring the ornaments, they decorate the tree.

WILLIS: And they do the work.

SAINT-ONGE: That's right.

WILLIS: I always love that, passing the work on to somebody else.

Let's talk about the lights. Now, you brought this up, let's take -- check out this light over here.

SAINT-ONGE: Well, what we're looking at is the idea that lighting can transform a space easily. You can put these on any light in your house. And actually what it does is, you plug your lamp in, you just tap it, and it gives you different levels of light. So you can do this to all your lamps. You can do to your Christmas tree, you can do it to your outdoor lights.

And it creates...

WILLIS: Awesome.

SAINT-ONGE: ... a mood. And that's really what it's about. The use of candlelight. I mean, these aren't even...

WILLIS: But...

SAINT-ONGE: ... real candles. These are...

WILLIS: ... this isn't a real...

SAINT-ONGE: ... LED lights.

WILLIS: ... candle at all. These are...

SAINT-ONGE: That's right.

WILLIS: These are...

SAINT-ONGE: Put them in the windows.

WILLIS: Now, are these expensive to buy?

SAINT-ONGE: They're not expensive. They come in sets. And the idea is, is that you can use them anywhere in the house, if you have allergies, if you have kids that are running around. And the idea is, you're creating an atmosphere. And you put them on all your windows. I mean, that's what I want to do for the holidays, is put these in the windows.

And the idea is that you're creating something that's going to be memorable, it's going to be inviting for your friends and family.

WILLIS: Let's talk about memorable. You've got some artwork over here. You say, get the kids involved. What's going on here?

SAINT-ONGE: Well, this is something I whipped up last night, because I wanted to leave you with something on the set, but ...

WILLIS: No kids here...

SAINT-ONGE: But this is not for kids.

WILLIS: ... this is adult artwork.

SAINT-ONGE: Yes. But the idea is, you can bring out artwork, have your kids do a Christmas scene or a holiday scene, put them in frames, and then put them away after Christmas, so that every year you bring them out, it's something new and something to remember of past Christmases.

WILLIS: That's, that's a great idea. And could possibly be embarrassing to those kids down the road. OK.

So let's take a look here at what you've got on the set here. I like the colors that you're using here. I think they're really attractive. But what if I want to do something more traditional?

SAINT-ONGE: You can definitely do it traditional. You can just do a different spin on it. I mean, definitely, the greenery is such a big thing this season, I mean, doing the green. That's a reminder of Christmas, the smell of the spruce and the pine and all that.

The other thing that you can do is to bring a little bit of Christmas into it and a little bit of sparkle is what we've done here with the ornaments we've brought in. You could do the red and green if you wanted to. You could do more gold.

The other trick that I have is this timesaver, is doing flower arrangements. And I love the idea of doing fresh.

WILLIS: These are beautiful, I have to tell you.

(CROSSTALK)

WILLIS: This looks like something you'd pay a lot of money for. I have...

SAINT-ONGE: And you can do this yourself.

WILLIS: Is there a way to save money when you do these, though?

SAINT-ONGE: Well, definitely what you could do is, you could see the arrangements we have around here, the flowers are not real. I've taken silk flowers that look real and stick -- you know, you stick some greenery...

WILLIS: Very pretty.

SAINT-ONGE: ... you take some -- go out in your back yard, you cut some branches down. Use what you have, and then just display in a beautiful way. I mean, people come to your house. Have a table with Champagne flutes and Champagne and candlelight around it, and it welcomes them into your home. Simple and easy.

WILLIS: Very simple and easy.

SAINT-ONGE: Yes.

WILLIS: And some of this reusable, because you're mixing the fake and the real...

SAINT-ONGE: That's right.

WILLIS: ... so you can reuse that stuff again next year, which is such a big thing for your budget.

SAINT-ONGE: Exactly.

WILLIS: Any other budget-saving ideas?

SAINT-ONGE: I love fruit. I love the idea of displaying fruit around the room, you know, having that, it's edible, it's easy access.

WILLIS: I agree.

Thank you, Stephen.

SAINT-ONGE: You're welcome.

WILLIS: OPEN HOUSE will be right back.

(COMMERCIAL BREAK)

WILLIS: A good loan rate requires good credit. But did you know as many as one in four credit reports have errors that are serious enough they can keep you from getting a loan in the first place?

Make sure you monitor your financial record. Get your free credit report at AnnualCreditReport.com, or you can simply call 1-877- 322-8228.

And don't forget, if you see negative information that is seven years or older, you can complain. Federal law ensures that really old data cannot appear.

And finally, you think land in New York is expensive? Check out the air. Prices are soaring. Two developers have agreed to pay $430 a square foot for the air rights over a church in a private club on Manhattan's exclusive Park Avenue. That's so they can build a very tall tower next door. Before this, air usually cost less than half, about $200 a square foot. The good news? Last we checked, breathing was still free.

We want to hear from you. Send us your comments or even pictures of your own holiday decorations to openhouse@cnn.com. And you'll find more on today's guests and topics on our Web site, cnnmoney.com/openhouse.

Thanks for watching OPEN HOUSE. We'll see you here next week. The day's top stories are next on CNN Saturday. Have a great weekend.

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