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It's A Buyers Market, Home Sellers Beware; Gas Prices Have Not Peaked Yet; Take Stock of Overpriced, And Under priced, Housing Markets

Aired May 19, 2007 - 09:30   ET


GERRI WILLIS, CNN PERSONAL FINANCE EDITOR, OPEN HOUSE: Good morning. I'm Gerri Willis, and this is OPEN HOUSE, the show that saves you money.
Coming up, is your home making you sick? Hidden health hazards in your home and how to keep your families safe. We'll also take you coast to coast for the best bargains and most overpriced properties.

But first, serious signs of trouble in the real estate market, a new report shows foreclosures rose 62 percent in April compared to a year ago, and we're beginning to see a trickle-down effect. Building permits dropped 8.9 percent to 1.4 million, the slowest growth in a decade.

For the first quarter, the outlook isn't much better. Sales of existing homes plunged 6.6 percent. And home prices, well, they are still falling. The median existing home price hovers around $212,000, down nearly 2 percent from a year ago.

The climate of this housing market may change how you deal with your real estate agent. Brad Inman is with in Berkeley, California.

Brad, good to see you.

BRAD INMAN, INMAN NEWS: Great to see you, Gerri.

I want to start by showing you some numbers. You know, we never look at the past, and I want to do that today, looking at previous cycles. Check it out. You can see how much we've fallen in this typical cycle, peak prices to dropped prices, not much, 13 percent compared to previous dips.

You can see 18 percent and an amazing 48 percent. As you look at this market, Brad, let's talk a little bit about buyers. They've got to have the edge now. What should they do?

INMAN: Well, one, buyers should be very patient. There is more and more inventory, housing coming onto the market, you know. We've got the foreclosure market, we've got homes not selling. Average time in the market is longer. So more and more real estate's coming onto the market and there is fewer buyers because of the squeeze on credit, because of the sub-prime fiasco.

WILLIS: Right, I want to talk about that just a little bit. You know, we talk about the tightening loan standards. It's harder and harder to get a loan. You know, people out there are really concerned. You say it's back to basics for people who want to borrow money.

INMAN: Yeah, and that's really, you know, there's fewer buyers, there's more supply, but the buyers that are out there will find it harder to get a loan because of the mess with sub-prime. Consequently, lenders are tightening up in credit, making it harder to get a loan. Also, they are requiring more down. The days of 100 percent financing, zero down are over.

So you have to accumulate the down payment. This is the old days of getting a home loan. Consequently, buyers that have the qualifications can get the loan, there is a lot of inventory out there, and a lot of opportunity.

WILLIS: A lot of inventory out there, a lot of opportunity, but it's back to basics. You've really got to make sure that you've got your Ps and Qs in order, right? You've got to make sure that, you know, your credit score is good, that you have everything you need for the down payment, right?

INMAN: Yeah. You've got to go through, you know, your credit report and you've got to get those dings out of your credit report, mistakes, anything that may be wrong in there. You know, pay things off on time. It's really getting back to basics. It's a very conservative time again.

WILLIS: Right.

INMAN: You know, the days of easy money are long gone ...

WILLIS: No kidding.

INMAN: ...which is a good thing, I think, for the market.

WILLIS: Good for the market, bad for sellers out there. They are really struggling. You say they've really got to work hard here. You say maybe the first offer is the best.

INMAN: Yeah. In this market, there's fewer buyers, fewer qualified buyers. So if someone comes in and makes you an offer for your house, get your expectations out of the stars. It's not 2004. And so move quickly if there is a serious buyer. Take advantage of that buyer, because there may not be one behind them.

WILLIS: Brad, let's talk about what's going on in the real estate industry for just a second and how that affects sellers. You know, we had so many discounters come into the market, there was a real opportunity not to pay 6 percent, when you sold your house. What's going on now? Can I still do it? Is it a good time to use a discounter?

INMAN: Well, it's a harder time to sell. There is less, you know, there is a lot more inventory. So you as a seller have a lot of competition. So you need to make sure your property's marketed well. You need to make sure you've got a good negotiator and someone can really represent you well.

And discounters work better in a sellers market where anything would sell. Why pay a full commission was the thought of many sellers. But now it's harder to sell. So having an experienced agent, or broker, is probably very important. You're probably going to pay a higher commission for that.

WILLIS: OK. Well, obviously, though, you want to shop around, right? I mean, at the end of the day, you've got to be able to negotiate that commission.

Brad, excellent advice. You've got to use your power in the marketplace. Thanks so much for joining us today.

INMAN: Thank you.

Owning a home is considered a big part of the American dream. The Asian-American community lags behind the national average for homeownership, even though they're one of the fastest growing segments of the population.


WILLIS (voice over): Sixty 60 percent of Asian-Americans in this country owned a home in 2004.

JIM PARK, ASIAN REAL ESTATE ASSOC. OF AMERICA: That still is relatively lower than the overall population, and particularly, the white Americans, which is at 75 percent . But we think that number has plenty of room to grow.

WILLIS: But the Asian community will have several obstacles to overcome. One of those, the language barrier, which can make a complicated home-buying process even more difficult. At Asian- Americans for Equality, instructors teach home-buying workshops in Chinese and Korean to help overcome the language barrier. It also helps overcome a lack of knowledge of the American system.

Ping Wu recently bought a home in Flushing, New York. She says in her hometown, in China, people bought homes with cash. A mortgage was unheard of. Charles Cai ran into the same problem when he decided to buy a home.

CHARLES CAI, HOMEOWNER: I don't have any experience to buying a home, so I have no clue how to apply for loan. What steps I should go through to buy a home.

FLORA FERNG, ASIAN-AMERICANS FOR EQUALITY: A lot of times when American people buy homes, they can learn experience from their parents, you know, they have a relative, uncles, aunties. As the first-generation home-buyers, they have nobody to kind of follow.

WILLIS: Even the credit reporting system can cause problems. Asians are generally careful with their finances, but because they're used to paying for most things in cash, many find they don't have a credit score. A number of companies have started addressing that problem with alternative credit scores.

PARK: These people have been here several years, they have been paying their bills, they have been paying their utilities, their rent. Maybe they have been paying their phone bills, or their cellular phone bills, and those things establish a pattern of payment history.

WILLIS: For many Asians, overcoming these obstacles and buying a home is all part of the American dream.

CHRISTOPHER KUI, ASIAN-AMERICANS FOR EQUALITY: When they buy a home, they do get involved in their own community as well as actually begin to contribute to the city, and then to the country.


WILLIS: For more information, visit the Asian-Americans for Equality Community Development Fund; their web site is,

Up next on OPEN HOUSE, important tips to help you ride out gas price hikes and get rid of germs. We'll show you how to detox your home. And a closer look at the cost of real estate from coast to coast.

But first, a financial check-up in this week's "Tip Of The Day".


WILLIS (voice over): Maintaining a good credit score is critical. It means better rates on mortgages, loans, and some employers even scrutinize your credit score before they offer you a job.

Among the many things you can do to improve your score, challenge any and all mistakes on file with credit reporting agencies. Since 79 percent of all credit reports contain some type of error.

Write a letter to the credit reporting agency disputing their information, providing proof, if you can. They must address your dispute within 30 days, or remove the item. That's your "Tip Of The Day."


WILLIS: Gas prices continue to put a squeeze on your pocketbook. The national average for a gallon of regular gasoline hit a record, at least $3.11 this week. So, how did we get here? And what can we expect for the future? Robert Sinclair is with AAA.

Robert, welcome.


WILLIS: Let's talk about some numbers, first. You know, the average family now is paying $1,000 more for gas than they did just five years ago. Check it out. This is really tough for families. And we're seeing, you know, mortgage costs extremely high, lots of credit card debt. This is a real burden on consumers right now.

SINCLAIR: It really is. We recently did some consumer cost estimates on the price of operating a motor vehicle, and it's averaging about 52 cents a mile. That means if you drive 100 miles, it's going to cost you $52. And for probably 40 percent of the American public, and thus 40 percent of AAA members, they are living paycheck to paycheck. So there really isn't the elasticity in their budgets to deal with fluctuating gasoline prices like we're seeing, and it's becoming a really big burden.

WILLIS: People are having to pull back across the bored; it's scary stuff. As we look forward, I know you guys think a lot about where gas prices are going. What's on your crystal ball right now?

SINCLAIR: Well, we think with all the factors that affect gasoline prices remaining as they are right now, they might peak at about $3.25, nationwide, for a gallon of unleaded regular.


SINCLAIR: Yes, and that's going to break a record.

And what's distressing about that is that these records are coming during a time when we're having no infrastructure problems, such as we had after Hurricanes Katrina and Rita back in 2005, when we set the previous records. So --

WILLIS: So you're saying, if we have a big hurricane event, it could even get worse?

SINCLAIR: Yes. We're very, very vulnerable. If there is a hurricane, a major weather event or something happens with one of the refineries, because we're operating on thin margins, as far as refinery supply, we could see prices really spike.

WILLIS: What is it going to take to build more refinery capacity or use what we have?

SINCLAIR: You know, it's really tough. Refineries admittedly are expensive propositions; they might cost $2 or $3 billion, and they need to be built near markets. So you'll have community opposition to something like that going up.

In addition, there is a lot of government regulation that stands in the way. So really, what we see is the possibility of coming out of this is to have more efficient vehicles on the road, and to have people really cut back on the unnecessary driving -- which probably they're already doing, according to what we're hearing from our members.

WILLIS: We talk about that all the time. I'm not sure how many people are finding a buddy and commuting into work. But let's talk a little bit about how all this changed for Americans. Look, our drive to work is far longer, we're driving more expensive vehicles. It's not just the price of gas that's going up, it's the price of the commute. SINCLAIR: That's true. You're seeing there is a lot of urban sprawl going on, real estate prices are going up in the downtown areas, so people can't afford to live closer to their jobs. So they're moving farther and farther away. And the commute is getting more expensive. We have more cars per household these days.

WILLIS: You say, what, 2.3 cars per household?

SINCLAIR: Yes, 2.3 is about the average number of children, it seems, in the United States, and we're driving a lot more miles.

WILLIS: So gas prices go right up along with that, right?

With higher demand comes higher prices, and you know, we're driving bigger vehicles these days. I mean, there are lots more fuel- efficient vehicles available, but fully, half the vehicles on the road these days are light trucks and sport utility vehicles and pick-up trucks and that sort of thing. So actually, we're worse off now as far as average fuel economy for all the vehicles on the road than we were in 1984.

WILLIS: Right. Dump the SUV, that according to Robert Sinclair, right?


WILLIS: Can I quote you on that? Thank you so much for being with us today, we appreciate it.

SINCLAIR: You're welcome.

Let's look at some practical things you can do to cut your cost at the pump. First, make your car as aerodynamic as possible. Get rid of the roof rack and real spoiler. You don't want to weigh your car down any more than you need to, so clean the golf clubs or winter skis out of the trunk. And if you're driving more than 35 miles an hour, cut the wind drag by rolling up your windows and turning on the air conditioning. And if you can, park in the shade. It helps maintain the car's temperature so you don't have to crank up the air conditioning when you're ready to leave. >

Straight ahead on OPEN HOUSE, stay healthy this spring. We'll show you how to detox your home. And is the price right for your house in your hometown? We'll check it out, but first, your mortgage numbers.


WILLIS: You weren't the only one trapped in your home this winter, germs, pollution, yucky stuff, several recent studies show that indoor air pollution rivals the quality of large, industrialized cities. Scary fact, but true, especially in the place you sleep and you eat.

I went to the Good Housekeeping Research Institute to find out how to detox the dangers in your home. (BEGIN VIDEOTAPE)

WILLIS: This is one of the scary parts of the whole house. I'm always worried about my gas stove. And I read somewhere that even the EPA says that indoor air pollution, two to five times higher than outdoor air pollution. This has got to be one of the culprits.

JOHN KUPSCH, DIR., GOOD HOUSEKEEPING RESEARCH INST.: Well, quite possibly, it is. Each year over 200 people die from carbon monoxide poisoning. Carbon monoxide is generated any time you're burning a fuel, like natural gas.

So one good way to see if your appliance is operating properly is to turn on the burner and look for a yellow tip flames. This one's burning well. It's all blue.

WILLIS: You want all blue?

KUPSCH: You want all blue flame. And if you have yellow tips in your flames, it's best to really have a professional come in and adjust the burner.

WILLIS: John, cleaning products, everybody's worried about volatile organic compounds. I mean, come on, is this something I really should be concerned about when cleaning my house?

KUPSCH: Well, there are a lot of chemicals in the home that for cleaning, for example, drain cleaners, paint thinners, that have these volatile, organic chemicals, that when released can cause lung damage, or dizziness or fatigue.

WILLIS: You know, mom had it right, open those windows occasionally, right? When you're cleaning? I mean, that makes sense, get some ventilation going, get some air moving.

KUPSCH: Yeah, it's really best when you're using these types of cleaning chemicals, don't mix chemicals, and keep the area well ventilated to exhaust all the harmful fumes, which could be dangerous.

WILLIS: Springtime, everybody's getting their air conditioning units ready. If you have those wall air conditioning units, those things are filthy. They've got to be bad for the kids, for the pets, for everybody in the house.

KUPSCH: Well, the window units are great for providing cool air, but sometimes they can get all gunked up with pet dander, pollen from outside, and dust. So it's a great idea just before you use it every spring or summer to clean the grates, clean the blades, clean up the drip tray for mold and stuff that happened from the previous year.

Before you start off the unit for the first time for the year, put a wet towel over the front of the air conditioning unit where the fan is blowing. And then turn it on, and this will capture all of the pollen and pet dander and dust from last year, so you don't put last year's dirt in this year's house. Keeps it nice and clean and then you're good to go. WILLIS: What about central air conditioning units? What do you need to do to those?

KUPSCH: Well, central air conditioning units usually have what they call filter in there that filters out the air before it goes into your space. So what you want to do is change that filter every three months or so, and make sure you have a HEPA filter, which filters out over 99 percent of smoke, dust, or pollen.

WILLIS: Air purifiers, everybody wants them. I am not convinced that paying $200 to $1,000 for an air purifier unit is worth it. What is worth paying for?

KUPSCH: Some room air purifiers are definitely better than others on the market. What you want to look for one that is certified to AHAM standards. AHAM, American Home Appliance Manufacturers, its standards, which means it will have a clean air delivery rate, CADR rating, which tells you how many cubic feet per minute of clean air is being delivered to a space. Definitely look for one with a mechanical fan and again, with a HEPA filter.

WILLIS: As always, if you have an idea for a weekend project, send an e-mail to And if you want to see this "Weekend Project" again, check out our Web site,

Up next, a look at the most overpriced and under priced cities in the country. But first, a city that's just well, pricey, in this week's "Local Lowdown."


WILLIS: New York, the most expensive city in North America and now the 10th most expensive in the world. In the U.S., around 42 percent of the typical consumer's income goes toward housing. In Manhattan, 56 percent. Nationwide, taxes eat up around 9.5 percent of income. But in Manhattan, 15.1 percent.

Basic costs are 9.9 percent higher here than in the rest of the country, but a job that pays $30,000 elsewhere will pay almost $37,000 in the Big Apple. That's your "Local Lowdown."


WILLIS: More than 39 million people move every single year, and in a lifetime it's likely you'll move 11 times. Just thinking about it stresses me out. But no matter where you move, you want to make sure you get the most for your money. Matt Woolsey is with, and he's here to tell bus the most overpriced and under priced markets across the country.

Matt, welcome.

MATT WOOLSEY, FORBES.COM: It's nice to be here.

WILLIS: OK, so you've got an interesting way of looking at this priced to earnings ratios -- for houses, not stocks. How did you calculate that?

WOOLSEY: The way we started it was it's important to think of your home as an investment. It's the most important investment most of us will ever make. So you start out with what the price of a house, you know, in a market. And then, you calculate how much it's going to cost to rent that out. You calculate insurance, you calculate taxes, and subtract that from what you could take as an annual return renting it.

WILLIS: Let's start with San Diego. Now that's a market that's been going up, up, up. You say it's way overpriced.

WOOLSEY: It is overpriced and it's actually started to trend down over the last year. From the fourth quarter of 2005 to the fourth quarter of 2006, home values have been depreciating. A critical element of that, too, is the affordability of that particular market.

WILLIS: OK, let's talk about San Francisco as well, as long as we're on the West Coast. San Francisco, land-locked, prices have always been high there. But you say way overpriced, even now.

WOOLSEY: Right, and one of the problems there is less than 7 percent of the people in that particular market who can afford the houses that are available. And so what that results in is a market where the median home price is more stagnant and has less room to grow, because people at the median are the ones who really affect a market.

Luxury prices are always going to be strong in a city like San Francisco, but when the people who are looking to buy can't necessarily get in, it's hard to see growth.

WILLIS: All right. Let's talk about some of those under priced markets out there, since there are some surprises. Charlotte, strong local economy. I would have expected really strong prices, but not so.

WOOLSEY: Not so. It still has a lot of room to grow. One of the strengths of Charlotte is that in the housing boom of the last five or six years, it didn't grow as rapidly as a lot of other cities. Sort of slow and steady wins the race kind of issue. So they've continued to appreciate. They've had a good element of in-migration. People are moving there, jobs are being created, the local economy is still doing strong and as a result, prices go up.

WILLIS: So, Austin? I've always loved this market. Gorgeous area, very popular, and under priced right now.

WOOLSEY: Mm-hmm. And one of the things Austin is riding now is it's rapidly becoming the new technical and one of the new music capitals, the new Silicon Valley and competing with Nashville and Los Angeles for music.

As a result, there are a lot of young people are moving, and the whole downtown area's becoming very, very built up, and it is improving at a rapid rate. WILLIS: Orlando, this was interesting. I expected Orlando to be overpriced because it's in Florida, where you see a lot of overpriced markets, but not so. Even with Disney, you know, houses still very affordable there.

WOOLSEY: Right, Mickey does a lot for that market. But what happens is if you compare Orlando to say Miami, people in both cities make about the same amount of money. But Miami, for example, houses cost so much more. And what that effectively means is that more people are going to be in a sub-prime lending situation in a city like Miami than a city like Orlando. And as a result when you see the fallout from the sub-prime lending problems, that doesn't affect a market like Orlando as much. So growth can continue at a decent rate.

WILLIS: Matt, thank you so much for being with us today. We appreciate it.

WOOLSEY: Thanks for having me.

WILLIS: As always, we thank you for spending part of your Saturday with us. 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.

Don't go anywhere. Your top stories are next in the "CNN Newsroom". Have a great weekend.


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