Music Jill Schlesinger: Okay, it is time for Ask the Experts. This is the time when the Moneywatch editors, bloggers and all interested parties get together and talk about what is in your minds. Today it is real estate because we have all those fun, housing numbers out, and you know real estate bubbles, they blow up, they pop, so we thought, you know what who should we get to talk about that besides just Jack Otter and Jill Schlesinger. I love that. What about someone Jack Otter who graduated from a real college as opposed to us. Jack Otter: Okay. Jill Schlesinger: Someone who maybe graduated from Harvard, summa cum laude. Jack Otter: Wow. Jill Schlesinger: It's really just amazing. Someone who has been a reporter, an editor, a real-estate agent, a Wall Street desk jockey, a failed flipper, which is one of my favorite things, and a landlady, Edfil Mertz assumed spelling or Ali Rogers, thanks for coming here. Ali Rogers: It is good to be here. Jill Schlesinger: Alright Ali, we got some pretty bad news this week, housing starts just got crashed, 10.6 percent lower in October, what you make of that lady? Ali Rogers: Well, the first time buyer tax credit had been scheduled to expire in November and they think home builders saw that that credit was expiring and did not want to put supply into the system. But, there is good news which is that the credit was extended through the first half of 2010, so I think we will see starts come up in November and December. Jill Schlesinger: Jack Otter, you and are you looking forward to a buoyant housing market anytime soon? I mean, well Jack Otter sent this chart along, so let us just put that chart up Roland. Roland is working all the technological things here, so we have a chart here. So, this is a new home prices and median income and Jack Otter you love this, you heart this chart. Jack Otter: I heart this chart. The key line is the red line which shows and if you look the numbers on the right side of the screen, they show the relative price of houses compared to the median income. And what it shows is when that red lines spikes there that they were unaffordable in a way housing has not been since before this chart started. Now finally, we are getting closer to where they should be. Jill Schlesinger: Closer. Jack Otter: But remember what happens when bubbles burst. Jill Schlesinger: It is uglier. Jack Otter: The asset always goes down below fair value and we are not even there yet, so by that one measure--it is not the only way to measure housing prices, but by that measure, they are still a little steep, so I think it is going to be a bumpy road. I just had breakfast with the guy who said that his view of the real estate market was like a lead ball hitting sand. Jill Schlesinger: Wow. Jack Otter: It stops when it hits the sand, but it doesn't bounce. Jill Schlesinger: Ali, prices is going to keep going lower, what do you think? Ali Rogers: Well, I am realtor so you can argue that I have drank the Kool-Aid, but I think one thing that is missing from Jack Otter's analysis is that the price of money has not been constant. And the price of money is so low where it's 75- percent fixed rates that I think that is going to help us a little bit. So, I would agree that the lead ball hits the sand, but I think maybe it sort of rolls on for a little bit instead of really sinking down into the sand. Jill Schlesinger: Well, here is good news because already I love Ali as my new favorite guest on Ask the Experts because she teed up this question for me. So, let us talk about that the cost of money and in terms of a real Moneywatch question from Dan who says, "We are downsizing and we will be able to pay cash for our next home. Is that a good idea in light of the uncertainty with the economy? We are 55 years old. We have other investments and pensions." So, let us start--I will start with Jack Otter and then I will let Ali follow up, so Jack Otter as cash or no cash for Dan? Jack Otter: Well, unfortunately I am going to play the Ray Martin here and I need to know more information to be sure, purely economically. Jill Schlesinger: Yeah. Jack Otter: If Dan has a job with a 401(k), the higher the income he makes the more reason he should take out a mortgage and divert that salary into his 401(k). Academic studies have shown that you end up with more money that way, because the mortgage is tax deductable, but in pre-tax dollars, remember when you have a 401(k) you are putting a hundred cents on that dollar into the 401(k). When you don't in the 401(k), the government is taking 25, 30, 35 percent so you are putting 65 cents into that house. Jill Schlesinger: Ali what do you want, you want to pay cash or you want to borrow the money? I am 55 years old. Let us assume I will play the other side of it, so let us just say-- Jack Otter: I would say 15 year mortgage by the way serving out of 30. Jill Schlesinger: Okay, so Dan, I am going to dispute that actually. Jack Otter: Okay. Jill Schlesinger: Because I think if you are going to get a mortgage and it is for your tax savings and purposes, get a 30-year mortgage because you get a better deduction, but just plan to pay it off in 15 years. Jack Otter: Or that, yeah, yeah. Jill Schlesinger: So, but Dan is 55 years old Ali and is there something to be said for peace of mind versus the economic better choice. Ali Rogers: No, I am kissing up to Jack Otter on this one. You want a mortgage, a million dollar mortgage because that is the extent to which it is tax deductable and peace of mind comes from putting some cash aside to cover those mortgage payments in the event of something unexpected happening, perhaps a health crisis. Jill Schlesinger: God I love it. Alright, I like the advice. I am doing it myself. Okay, we got some more questions here. Ali, you recently received a very specific question from a user who did go ahead and buy in this market and here it is. It is like, Dear Abby, Dear Ali, you are like the Dear Abby of real estate. We have got to get you your own sounder. "Dear Ali, I bought a condo this year and now I am taking a look at my taxes, our points that I paid when I bought tax deductible." Ali Rogers: This is actually sort of a complicated question, because the way mortgage lending works often lenders try to call things points to make you pay them, that when you go to pay your taxes you will discover they weren't really points in the first place. Jill Schlesinger: A-ha. Ali Rogers: So, a point which to define for people who are listening who haven't bought a house in the past couple of years is basically prepaid interest to take your interest rate down. And in the current market basically everyone is paying a point to get a slightly better interest rate. A point should be tax deductible, but if your mortgage guy or gal puts in things like lawyers fees, or lien searches, or anything administrative then the IRS will rule that it is not tax deductible. Jill Schlesinger: Now if you want to read the whole spiel, the Ali spiel, Roland, can you throw this up on the screen please because we have the phenomenal Ali here and she has an entire blog post devoted to this, "Are points tax deductibles?" So, if you are buying a house and you want to know there you go right to Ali's blog, Ask the Agent, even though this is Ask the Experts, so you can ask Ali any question. Alright, I got some more stuff, you ready guys? Jack Otter: Can I ask Ali a question? Jill Schlesinger: Well, you want to preempt the Moneywatch user, fine, okay. Ali Rogers: I haven't prep for this. This is real time guys. Jill Schlesinger: This should not--alright continue. Jack Otter: In that column, I was interested to see that you said points on a second home were deductible if they are real points? Ali Rogers: Yes, one thing you have to talk to your accountant about is whether they are going to be deductible in the first year of purchase, which is what they would be on a primary home, or whether they need to be deducted over time. Jack Otter: So, the mortgage then on the second is tax deductible if it is under, if your total mortgage payment is under a million? Ali Rogers: Yes, it is certainly. Jack Otter: Wow, I did not realize that, okay. A lot of people do not understand that. Jill Schlesinger: Because Jack Otter and I have heard a rumor would someday like that second home. Jack Otter: Someday. Jill Schlesinger: Or he will just bring his entire family to my second home, which I actually bought-- Jack Otter: Good idea. That is much a better idea. Jill Schlesinger: Slightly cheaper. Jack Otter: Economically, yeah. Jill Schlesinger: Not a child friendly house, sorry. Okay, here is one question, so this is a broad question alright and, but everybody does wanted to know and Ali you have talked about that you know cost of money really low, so when--we used to hear general rules of thumb about refinancing. How about refinancing in this market when it makes sense, when it may not makes sense. I think a lot of people have that question right now. Ali Rogers: I actually do not like refinancing in this market very much and I will tell you why. One is it most people who need to refi already have and doing a second refi is never as joyous as the first. Another is that the rules have changed so that refi's are now risked-based lending. So, you get thrown into your asset class. So if you have a two family house and you are perfect. You pay off your America Express, you pay off your car loan, you have an 810 credit score, you still have to pay the administrative fees of everyone in your asset class. So, you are still going to get stuck with probably 1 percent fee just for being the owner of a two family house. So, you really going to be seeing some high upfront fees on your refi's, they are not going to be things that you can wriggle out of, and for that reason unless you are really paying a high rate, unless you are really at six and a half fit. Jill Schlesinger: Can you imagine you just said six and a half is a high rate. Remember that my first loan was at 7.875 and my father says, that is the cheapest mortgage rate I have ever heard of in my life. Are we just fat, dumb, and happy now? Alright, maybe not. Ali Rogers: We are spoiled. Jill Schlesinger: We are spoiled, alright. Jack Otter you want to refi, but maybe if you could, if you can get, in other words, what you are saying Ali is though, if you can get a good deal, if you can make sure that the cost are worth it over time that it might make sense. In other words, it is just not a blanket, yeah, do it. Ali Rogers: It is not a blanket, yeah, do it. People are staying in their homes longer. People are staying in their homes an average of 7 years now. So, you have to really think about what your time horizon is to stay in that place. Jill Schlesinger: And Jack Otter what do you think, are you ready to refi or not really? Jack Otter: Well, I agree. I would go, you have to do is you have to look at the numbers and how long will I be in the house, what is the total cost to refi is going to be. Remember, there is not only those fees that Ali is talking about, but also when you do a refinance, you end up paying more interest upfront than you would otherwise. So, if you go and sell that house in a couple of years that is really a bad deal for you. Jill Schlesinger: Jack Otter, let me ask you. Let me switch topics for a moment, beside Ali Rogers, agent to the stars, do you think that realtors are seen as better, worse or equal to stock brokers? Jack Otter: I think stock brokers are so low right now that that is an easy bar to walk over and that realtors are certainly higher. Jill Schlesinger: Okay what about, used car salesman, brokers and realtors, how do you want to scale that. Jack Otter: well, my impression is that realtors have not taken the blame as much for this crisis as bankers, mortgage brokers, they are real low. Jill Schlesinger: Oh yes, poor mortgage brokers. Jack Otter: But, sorry, yeah, but realtors, I think most people tend to see them with maybe on par with a new car salesman. Jill Schlesinger: Okay, now would it surprise you to know that Ali Rogers, agent to the stars, realtor extraordinaire calls some of her brother-in-liars? Jack Otter: Yes. Jill Schlesinger: I am shocked and dismayed that that would be such a comment. Ali would you like to comment on your blog, would you like to post a comment on your own blog right here on Ask the Experts that maybe of realtor could possibly lie, how is that possible? Ali Rogers: Well, please do not kick me out of the National Association of Realtors because I like having my license, but one of the things that is very hard about being a committed real estate agent and I know lots of them, is that we have such a bad reputation as a profession. And that is because the barrier to entry is non-existent. You have to be able to fog a mirror and unfortunately a couple of bad apples who do lie have sort of made the profession kind of difficult for the rest of us. Jill Schlesinger: Wow, I love that. I want--my mother is a realtor, and she has been a realtor for many, many years. She is not like a super agent to the stars like Ali Rogers, she is just a, you know lady you know who likes to have an office and as I was telling Ali before as we went on the air, my mother is known for telling people not to buy homes, which is nice, it is a very good thing you do not make a lot of money in that respect, but so I am very familiar with that process. I once was, said something at a bar that got me in trouble, once. Ali Rogers: Only once. Jill Schlesinger: I said something at a bar that got me in trouble and I blurt it out to somebody who was looking for a house who was with one of those of some kind of scary lying agents. And I said, " Oh, realtors are blanks." I will let you all fill on those blanks and it got repeated to be largest owner of an agency in the town in which I formerly lived. And it came back to haunt me and I sat down, I had lunch with her and I said you know I feel like you are in a situation that I am in. I was an advice giver, a financial advice giver, and I said the same thing. I said you know when other people are bad at a profession that makes everyone else look bad, so that a client comes in, sort of with a crossed arms and feeling really nervous about like what are you going to tell me miss money manager that I have not heard before, so too with realtors. So Ali, how can we raise the bar a little bit on what it takes to be a realtor and what should be done to make it more of a profession. My father would say that any profession where you had to get phone calls at home on Saturday is actually not a profession. Ali Rogers: That is very funny. Jill Schlesinger: What should be done? Ali Rogers: I think the recession is actually helping, because I think a lot of people who had a very part time get rich quick attitude towards this are not going to make it through. I do sell in Manhattan and two of our closest competitor firms have folded, so what's happened is their stronger agents have gone on to find jobs elsewhere and their weaker agents so simply gone on to do other things. So, I think the recession is actually helping a lot, but it wouldn't hurt to raise educational standards of his profession. Jill Schlesinger: Jack Otter, would you like to pose, let us do a little pinky guess here, like we do a pinky swear thing. How many Harvard summa cum laude realtors do you think there are in Manhattan besides Ali? Jack Otter: Besides Ali? Jill Schlesinger: Yeah. Jack Otter: One. Jill Schlesinger: Yeah, maybe. Jack Otter: Maybe, yeah. Jill Schlesinger: That is what I was thinking Jack Otter: But that person did not shaken out, so she is still there. Jill Schlesinger: There it is. Jack Otter: Yeah. Jill Schlesinger: Okay, and alright-- Jack Otter: And one thing I want to say. Jill Schlesinger: Yes. Jack Otter: I wish that your, was it your mother-- Jill Schlesinger: Yup. Jack Otter: Had been the real estate agent to Nicholas Cage. Jill Schlesinger: Oh, really we got to talk about the real--that this is, this is like I just have to love this. Ali posted something a couple of days ago, "Foreclosure for National Treasure"--by the way it is a very well written headline that of. The SCO people love this. Alright, Nicholas Cage, what happened with poor Nicholas? Ali Rogers: He is in financial trouble. He is suing his business manager. It is very--I do actually work with some Hollywood celebrities. I am not going to use names, but I do relocate some people from Hollywood to New York and they have terrible troubles with money because they are artsy people and they hand their money over to others and sometimes the others are not always as on the ball, let us say Jill Schlesinger might be. Jill Schlesinger: Or Jack Otter Otter--hmp! Ali Rogers: So, he is having a dispute with his financial manager but he is right now facing--Nick Cage is facing $6 million worth of federal tax liens, so he is shedding assets. Jill Schlesinger: Which I guess, which we might want to point out in this recession is still real money, $6 million, you know, right. I mean, that is for real. Ali Rogers: It is. I mean, he can certainly take care of it by making a couple of movies. Jill Schlesinger: He is to just make one bad movie actually. Has anyone noticed that Sandra Bullock has made the worst movies in the history of mankind since like that one cute movie that she did. And I am wondering whether she is financing bad real estate right now, perhaps that is what her choices are all about. Ali Rogers: Oh do not rip on my Sandra. Jill Schlesinger: You love her? Ali Rogers: The Blind Side was a great Michael Lewis book, a great Michael Lewis book and it should be a good movie. Jill Schlesinger: Alright, well we are hoping, we are hoping because I love her. I think she is just darling. Jack Otter, would you like to weigh in on this? Jack Otter: I have children so I have not seen the movies since I think 2002. Jill Schlesinger: Did you see Up by the way? A housing movie I might add. Jack Otter: I have children, so I did see Up, yes. Jill Schlesinger: Was that a fabulous movie? Jack Otter: It was a lot of fun, yes, it was fun. Jill Schlesinger: It was awesome. I loved it. Alright, Megan, we have to cut, get going now, alright.
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