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A Tale of Two Housing Markets; Tax Shelter

Aired March 30, 2013 - 09:30   ET


CHRISTINE ROMANS, HOST: Good morning. Thank you. See you at the top of the hour.

If you've got a pile of cash, you got sparkling credit. Now is the time to buy a home.

But what about everyone else?

Good morning, everyone. I'm Christine Romans.

The Dow just wrapped up its best first quarter since 1998, anyone with a 401(k) is happy. But since 47 percent of Americans don't own stock, there may be some who don't feel any richer.

Maybe you are feeling it in housing. This week, we learn home prices jumped more than 8 percent in January. That's the biggest year over year gain since June 2006. All 20 of the markets tracked by S&P Case Shiller showed home prices.

Here's what's driving that -- slim inventory, super low interest rates, and improving jab market. There are also fewer distressed sales. But some people have been locked out, lenders have gotten much stricter about requirements. So, if your credit history is spotty, or if you have a resume with gaps you're going to have a hard time getting a mortgage.

And if you can't afford a hefty down payment the rock bottom interest rates may be out of reach. You're missing out but investors are not. They are making huge moves, investors made up 22 percent of February's existing home sales, 32 percent of February's home sales were all cash.

These are hedge funds, moguls, international players with fat bank accounts. Imagine not needing a mortgage for the biggest purchase most of us will ever make.

Is the housing recovery just more evidence we're living in one America with two economies?

Ali Velshi is CNN's senior business correspondent, the host of "YOUR MONEY." Mark Morial is the president of the National Urban League.

Ali, hedge funds, private rich investors, they smell money in real estate.


ROMANS: Look up the numbers. They're scooping up properties in Atlanta, Detroit, Las Vegas, Phoenix, L.A. -- those markets have seen huge price jumps.

VELSHI: Right.

ROMANS: Is the average American getting squeezed out of here? When I looked at some of these markets, more than a quarter of the sales are to people who are buying five, ten, 15 properties at a time.

VELSHI: Yes. So, the question is, is the average American in danger of being squeezed out again?

If you recall, with the run-up in prices before 2006-2007, average investors in California, there was zero chance you were going to buy a house and rents were going up.

So, at this point, the problem is I always encourage people to -- two ways to make money in this market -- in housing or in the stock market. The stock market, I can get anybody into it at any time with any amount of money and I encourage people to understand that.

House is tricky. There are a lot of people who wanted to get into housing but couldn't because they couldn't get the mortgage. There are people who want to refinance for lower rates.

If you have the access to get into the market, it is accessible to everyone with good credit, a down payment and an income. If you don't, yes, you're getting squeezed out and missing this rally because there's nothing you can do about it.

ROMANS: Well, most people, Marc, worry about a job. You can make money in housing, you can make money in the stock market. But most of us make money in our paycheck, that's how we forward our wealth, or grow our wealth.

Home ownership, that rate has been declining, still declining. It's a long way from where it was before the housing collapse. Should we be loosening lending standards so that people can participate in this, or is that the lesson from the bubble, we shouldn't have people sketchy on the job front able to get in the housing market?

MARC MORIAL, PRESIDENT, NATIONAL URBAN LEAGUE: The lending standard should be fair but pricing should be fair, because one of the things that caused the housing bubble were mortgage products and interest rates that varied. There were teaser rates and there were huge jumps. We need fair mortgage products.

ROMANS: That's coming.

MORIAL: We need fair statements.

ROMANS: That's coming, isn't it?

MORIAL: And the fact of the matter is -- I think it's on the way but the fact of the matter is, without a job, you can't afford any house, you can't afford to rent or buy. So as the job market comes back, I think we're going to see improvement in the housing market.

ROMANS: One way real people, Ali, are feeling though, fewer people are underwater.


ROMANS: So, is the house prices are rising -- I mean, an underwater loan, it helps you, 10.4 million people still have negative equity. That means they owe the bank more than the home is worth. But that number is 200,000 fewer than the previous quarter. That's a sign that everybody who has their hands in housing --


VELSHI: There are ways everybody benefits even if you can't afford to buy a house.

So, when people buy houses, even if it's a group of investors, Apollo, or Blackstone, or these big companies, we're buying houses, we're doing something, we're renovating them, we're renting them out, we're keeping them in better condition that creates jobs for people -- new houses. It's only about 8 percent or 9 percent of the market, but new houses mean construction jobs for people which can help you get wealthy.

But what we saw in the late '80s and '90s and 2000s was that home prices were appreciating faster than wages were appreciating. So, you could never actually catch up. You'd make more and more money and the house is more expensive.

ROMANS: With all the free money.

VELSHI: I don't think we're going to get to that point. We'll get -- we'll have fairer lending standards. We're not going to get to the point where anybody who can spell their name gets a loan.

ROMANS: Let me ask you. There's some idea the whole idea of chasing after American home ownership is dead, gone, people should be renting, you should be building your wealth in other ways. You should maybe be saving more money to send your kids through college. You should be maybe saving money to retrain, making sure that you have everything else, all your other ducks in the row before you jump into the housing market.

MORIAL: Americans should have choices and a house is more than an investment. House is a home. It's a secure place for your family, it's a secure place for you to raise your kids, it's a secure place for your longevity when you get to your senior years. Maybe you have a house that's fully paid for.

So home ownership is still central to the American dream, but the consumer should have choices. And that choice should be to rent or to own or to invest in the stock market.

ROMANS: Rents are rising. Now, 12 quarters in the row, we know rents have been rising.

MORIAL: The rental market is tight, so many people have been pushed into the rental market.

VELSHI: Who otherwise would have been owning houses.

ROMANS: And maybe more than -- someone e-mailed or tweeted it's not two economies, Christine, it's three, four, five, six different kind of economies, depending on what kind of job, where you live and how underwater you are on the loan. Housing market is recovering. We know who is winning in that, it's big, big investors and certainly hope it trickles to the rest of us.

Marc Morial and Ali Velshi.

All right, coming up: for those of you who do own a home, do you know there's money in it? There is. I'm going to show where you to get the money by opening your front door.


ROMANS: So, you know, I don't like New Year's resolutions about money because no one ever keeps them. It's a lot of pressure when spring rolls around.

I prefer to really take a good, hard look at your money around spring. There are five things you can do right now for your spring, I know, your freshening up, your financial spring cleaning.

First, check your credit. Go to for a free report, you get one each year, make sure there are no mistakes, clean up mistakes especially if you're going to borrow money in the next year.

Next, rebalance your portfolio. What should be your balance, go to, take my quiz, it will help you figure out what your risk tolerance is.

Number three, pay yourself first, are you getting a tax refund. Maybe you got a little raise or bonus. Save it before you notice it. Do not spend your raise. Do not put spend it. Put it into savings or college education fund.

Number four, check your insurance. Life insurance is critical if you have kids. Make sure it's up to date. Make sure your homeowners' policy is up-to-date. Make sure you know you're your premiums and your deductibles are, and all the paper works in order.

Finally, refinance your mortgage. If you still have a mortgage at 5 percent, get moving, average rates now on a 30-year fixed are around 3.5 percent.

OK. So, speaking of your house, this is also the time of the year to make sure you don't leave money on the table, tax season. Companies have the Cayman Islands and Bermuda, those are their tax shelters. When it comes to a tax shelter for the middle class, just open up the door.


ROMANS (voice-over): Your home can be a money pit. But come April 15th, your daily shelter can become your tax shelter. First, you can deduct mortgage interest. It's the third most valuable tax break in the country, worth nearly $1 billion a year.

(on camera): When you're looking at your house for your deductions, the biggest chunk in is in the interest for your mortgage.

GARY DUBOFF, MANAGING DIRECTOR, CBIZ MHM: There is a limitation on mortgage interest. The first $1 million of debt on a property is tax deductible on your primary residence and your second residence combined.

ROMANS (voice-over): Mortgage insurance is also deductible. So, are state and local property taxes. But if you lost money when you sold your house, too bad.

DUBOFF: Unfortunately, you can't deduct the loss on the sale of a personal residence. However, the IRS would want to tax the gains.

ROMANS: The first $250,000 of that gain is tax free if you're single, $500,000 if you're married.

So, get your calculator and any receipts for work that boosted your home's value.

DUBOFF: Your basis is, your original cost plus any closing costs, legal fees and of course any improvements that you may have made throughout the course of the ownership of that home.

ROMANS (on camera): So like everything in taxes, keep good records.

(voice-over): Good records are also key if you're taking a home office deduction. Figure out how many square footage you use for business and deduct that portion of your home's expenses, but be careful.

(on camera): If you have an office someplace else, can you -- can you, but working from home a lot, can you use the home office deduction?

DUBOFF: No, actually, the -- as an employee working for an employer, it really has to be for the convenience of the employer, so if you just decide that you want to work from home on a Friday, for example, you won't be able to deduct those expenses as a home office.

ROMANS (voice-over): Next year, you can use this formula from the IRS, $5 per square foot, limited to 300 square feet, for a maximum of $1,500.

DUBOFF: They simplified it with no questions asked, so there's no risk of being audited if you're eligible.

ROMANS: Two more tax goodies hiding in your house, certain energy efficient improvements can knock 500 bucks off your taxes although that's down from $1,500 in 2011. And if you move more than 50 miles for a job, you can deduct those expenses, too.


ROMANS: Up next, Americans are fat, getting fatter. From health insurance to airplane tickets, should you pay more if you weigh more?


ROMANS: If you weigh more, should you pay more? The debate over America's growing waistline has been getting louder and with it, the controversy over what to do about it. Two-thirds of Americans in the U.S. are overweight or obese. As a result, the private sector, it started to push back.

CVS Caremark is a national drugstore chain, the pharmacy benefit manager recently said it would require its 200,000 employees to share information about their weight or face a $600 penalty. Other companies are following suit.

A recent survey of U.S. employers showed that more than half plan to penalize employees who do not take, quote, "appropriate action" to improve their health.

Now, one reason may be the costs associated with obesity. On the health care front, The Robert Wood Johnson Foundation suggests the costs of preventing obesity-related diseases will rise to $66 billion by 2030, that could cost up to $580 billion in lost productivity, and 2011 Gallup poll found overweight or obese workers missed an estimated 450 million additional days of work compared with healthy weight workers.

So the question is, should we have the freedom to be fat or should we be paying for it?

Meme Roth is the president of the National Action Against Obesity.

Sunny Hostin is a CNN legal analyst and former federal prosecutor.

First, this controversy has a lot of people talking about health care arena. They're talking about health care costs, right? How about on an airplane?

If your body takes up more space than someone else's, even takes up into two seats, is it reasonable that someone who is bigger should have to pay more for the space they're taking on the plane?

MEME ROTH, NATIONAL ACTION AGAINST OBESITY: Christine, I think if you use two seats on an airplane you should be paying for two seats on an airplane. I don't know how you feel but when I sit down in a seat I'm hoping to use the whole thing and a lot of times if they can get the armrest down they're in their seat.

But you and I both know somebody can be spilling over under and into your area. And I do believe if you use two seats you should be paying for two seats.

ROMANS: But, Sunny, there's racism, there's sexism, there's all these isms, gender, things you cannot discriminate against.


ROMANS: If someone is bigger, it may not be their fault, it could be genetic, it could be -- you know, do they have to pay, should they pay more? Is that even legal?

HOSTIN: Well, you know, discriminating against people that are obese is actually sort of legal at this point. There's no federal protection against fatism, which is sort of what people are calling it these days.

But I will say this, airlines already have policies in place regarding the situation. If someone is large, as you just mentioned and can't fit the two arms down -- yes, they have to pay more. If they can't buckle their seatbelt, yes, they have to pay more.

And so, these folks just aren't legally protected.

But I've got to tell you, it almost seems to me that this is sort of the last area that you can discriminate against.

ROTH: I want to say something, obesity is not genetic. Actually all the studies show just about no one has to be obese. The cure is eating right and exercise, which is available to just about everyone, water is the choice, it's free.

So I don't want to mislead people into believing that somehow obesity is like sexual orientation or race. It's absolutely not.

ROMANS: So, what about companies? So, companies look and they're spending all this money to pay for their part of our health insurance, for example, if you have a job. Can a company -- should a company be able to say I don't like how you're living your life so I am going to require to you pay a higher premium. Is that fair?

ROTH: Absolutely. These higher costs of lifestyle choices are making us all pay the price. It's costing jobs.

HOSTIN: I don't know. Is it fair to call it a lifestyle choice?

ROTH: Oh, absolutely. The way you eat and exercise is absolutely a lifestyle choice.

We've seen the Cleveland Clinic not want to hire smokers and (INAUDIBLE) said they shouldn't be really hiring the obese.

So, you are seeing the companies do this. And again, the cost is passed on to all of us. We may not like to hear it, but the airline industry is a weight and freight business. And we are precious cargo but that's how they make their money.

So I think the total cost of a passenger, you plus your luggage, is manage to look at and possibly paying a premium over a certain threshold. ROMANS: I mean, I can't imagine a world that you have a scale coming into your job interview. You have a scale when you get on to an airline. Io mean, that sounds --

HOSTIN: It's a nightmare for these airlines.

ROTH: Why they're not doing it?

HOSTIN: I don't know that they can't care because we can't play words with friends on our iPods, right? They do things that make our lives miserable but I just can't imagine that our large airlines are going to force people to get on a scale.


ROTH: They want someone to do it first and take the heat.

ROMANS: Look, car insurance, you way more car insurance if you have a history of accidents or if you drive a kind of car that may be something that their studies show is more likely to be involved in an accident. Could they do that? Could health insurance companies do it about our bodies?

ROTH: They are doing.

ROMANS: The actuarial tables. Why can't companies say, you know, Sunny, you run three times a week, I'm going to give you a lower premium than Christine who doesn't run three times a week?

HOSTIN: You know, I think -- there tends to be -- if you're sort of following this story, I think companies are looking at ways of being able to do that. But, again, is that where we want our society to go? Do we want our society to in effect shroud discrimination and I do believe there is some discrimination there. Shroud discrimination in terms of health costs.

ROTH: I disagree with sunny completely. It's a lifestyle choice. If you understand the workings of Arthur Pigou, the great economists, he will tell you that a personal choice that ends up costing others means that someone else has to pick up the tab.

ROMANS: I have to ask you, do you get hate mail from people who are overweight?

ROTH: I get both. I get people who say, Meme, you've changed my life and I appreciate and a lot of people say they hate me. But what they don't understand is I come from a place of having seen my family suffer, and if I can do anything to avert that suffering for other people, I'm willing to do it.

ROMANS: All right. Sunny Hostin, on the legal angle. And Meme Roth, who is an advocate, clearly against obesity.

Thank you so much both of you.

All right. It may be the biggest civil rights dispute that the Supreme Court has taken on since Brown v. Board of Education. Are you taking a side on same sex marriage by buying a chicken sandwich or a cup of coffee?


ROMANS: So, the people in charge of Starbucks and Chick-fil-A, they're not standing outside the Supreme Court this week holding signs, but they haven't been shy about telling Americans what they think about same-sex marriage.

First, Chick-fil-A's president Dan Cathy enraged LGBT activists when he defended what he calls the traditional family.


DAN CATHY, PRESIDENT & COO, CHICK-FIL-A: I think we're inviting God's judgment on our nation when we shake our fist at him and say, you know, we know better than you as to what constitutes a marriage.


ROMANS: Very popular chicken chain, despite the backlash, Cathy's statements didn't damage sales. Thousands came out to support Chick- fil-A and the restaurant reported that 2012 sales jumped 14 percent from the year ago, from the year before.

Now, Starbucks, though, decided that its company culture calls for supporting same-sex marriage. CEO Howard Schultz pushed back after an investor complains that Starbucks stance had cost the company sales.


HOWARD SCHULTZ, CEO, STARBUCKS: We did provide a 38 percent shareholder return over the last year. I don't know how many things you invest in, but I would suspect not many things. Companies, products, investments have returned 38 percent over the last 12 months.


ROMANS: Take that. Schultz went on to say that he'd use the company stance is a moral decision not an economic one. But is Starbucks actually taking a moral stand or taking advantage of a growing support for same-sex marriage?

A recent CNN/ORC poll finds that 53 percent of Americans support same- sex marriage up from 40 percent in 2007.

The winds have been changing very swiftly on this. I want to bring in Susan McPherson. Susan is a director of global marketing at Fenton, a company that helps clients create campaigns around social issues.

Susan, Starbucks, its CEO is not alone. Lloyd Blankfein from Goldman Sachs, Jeff Bezos of Amazon, Google co-founders, they have all come out publicly in support of same-sex marriage.

Are these corporate leaders trying to make a moral stand or is it also good business?

SUSAN MCPHERSON, DIRECTOR OF GLOBAL MARKETING, FENTON: Christine, it's a good question. And I have to say that it is good business. They are looking at the polls, and they are specifically looking at the polls of that coveted demographic, age 19 through 34. The social generation, and they are seeing that those folks massively are supportive of this.

ROMANS: I mean, I did the exit polling for CNN for the election and we looked at that and we saw how young people, they want open-minded. They want leaders who are open-minded. They value being open-minded and they also support same-sex marriage more than those other statistics we were showing you.

MCPHERSON: And everyone is entitled to their own opinion, no doubt. But companies are thinking ahead. They want to be innovative. They want to be attracting those people to be employees.

ROMANS: Chick-fil-A was the first one out on it. It doesn't hide its support for biblical values. The chain -- it doesn't take on any debt. Restaurants are closed on Sundays. It stands on same-sex marriage actually boosted sales.

But they later released a statement saying, quote, "Going forward, our intent is to leave the policy debate over same-sex marriage to government and political arena."

Will public opinion ultimately force this company to reverse its position do you think?

MCPHERSON: Quite inevitably could.


MCPHERSON: So, it's an exciting times.

ROMANS: An issue that so many corporate chieftains were talking about? I mean, I can't think of --


ROMANS: -- maybe the civil rights movement and I wasn't covering business during the civil rights movement, but maybe that was something in the corporate suites companies had to really decide how they would deal with it.

MCPHERSON: Most definitely they did. If you look back in 2004, only 40 percent of companies covered same-sex benefits. This past year, we're now up to 75 percent of companies are supporting same-sex benefits. So, we are seeing the trajectory grow.

ROMANS: Interesting. So, they're ahead of the government really.

MCPHERSON: Yes. Well, and we've seen that through history. Business tends to move faster than the government.

ROMANS: All right, Susan McPherson with Fenton. So nice to see you. Have a good weekend.

MCPHERSON: Thank you, Christine.

ROMANS: All right. Find us on Facebook and Twitter. Our handle is @CNNbototomline. My handle is @christineromans.

I'm going to be back later today with Ali Velshi on "YOUR MONEY." Stocks are soaring. Are you happy with your 401(k) and investments? So, how do you know when it's time to take some of the profits off the table? We're going to help you decide when to sell. That's today at 1 p.m. Eastern.

"CNN SATURDAY MORNING" continues right now.