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Existing-home sales rose in July to the highest level in five months, although they continue to be well below the numbers from last year at this time, according to the NATIONAL ASSOCIATION OF REALTORS®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – increased 3.1 percent in July to a seasonally adjusted annual rate of 5 million units from a downwardly revised level of 4.85 million in June. Sales were 13.2 percent lower than the 5.76 million-unit pace in July 2007.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the up-and-down pattern may break soon.

“We hope the new tools in the hands of home buyers from the recently enacted housing stimulus package will spark a sustained sales uptrend in the months ahead,” he said. “Buyers who’ve been on the sidelines should take a closer look at what’s available to them now in terms of financing and incentives. Given some of the inventory on the market, we also strongly encourage buyers to get a professional home inspection.”

Median Price Down 7.1% from Year Ago

The national median existing-home price for all housing types was $212,400 in July, down 7.1 percent from a year ago when the median was $228,600.

Lawrence Yun, NAR chief economist, said home prices in some regions could soon increase.

“Sales have picked up significantly in several Florida and California markets. Home prices generally follow sales trends after a few months of lag time,” he said. “Still, inventory remains high in many parts of the country and will require time to fully absorb. We expect more balanced conditions in 2009 and will eventually return to normal long-term appreciation patterns.”

Analysis of NAR price data since 1968 shows home prices normally rise 1 to 2 percentage points above the overall rate of inflation, building wealth over the typical period of homeownership.

11-Month Supply of Homes for Sale

Total housing inventory at the end of July rose 3.9 percent to 4.67 million existing homes available for sale, which represents an 11.2.-month supply at the current sales pace, up from a 11.1-month supply in June. The rise in supply results from a sharp increase in condo inventory; the single family supply declined.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 6.43 percent in July from 6.32 percent in June; the rate was 6.70 percent in July 2007.

Single-family home sales rose 3.1 percent to a seasonally adjusted annual rate of 4.39 million in July from 4.26 million in June, but are 12.4 percent below the 5.01 million-unit level a year ago. The median existing single-family home price was $210,900 in July, down 7.7 percent from July 2007.

Existing condominium and co-op sales increased 3.4 percent to a seasonally adjusted annual rate of 610,000 units in July from 590,000 in June, but are 18.6 percent below the 749,000-unit pace in July 2007. The median existing condo price4 was $223,400 in July, which is 2.7 percent below a year ago.

In Detail: Regional Sales, Prices

West. Regionally, existing-home sales in the West jumped 9.7 percent in July to a level of 1.13 million and are 0.9 percent higher than July 2007. The median price in the West was $273,200, down 22.2 percent from a year ago.

Northeast. In the Northeast, existing-home sales rose 5.9 percent to an annual pace of 900,000 in July, but are 11.8 percent below a year ago. The median price in the Northeast was $278,700, which is 4.9 percent lower than July 2007.

Midwest. Existing-home sales in the Midwest increased 0.9 percent to an annual rate of 1.12 million in July, but are 17.0 percent lower than July 2007. The median price in the Midwest was $175,400, up 1.0 percent from a year ago.

South. In the South, existing-home sales slipped 0.5 percent to an annual pace of 1.85 million in July, and are 18.1 percent below a year ago. The median price in the South was $179,300, down 3.5 percent from June 2007.

What is an IRC 1031 Tax Deferred Exchange?
A 1031 tax deferred exchange is an investment tool where the taxpayer transfers property held either for productive use in a trade or business or for investment purposes and subsequently receives another property to be held either for productive use in a trade or business or for investment without recognizing any gain or loss. This investment tool allows the taxpayer to protect, grow, and diversify their assets by permitting them to sell qualifying property, reinvest the proceeds in new qualifying property, and defer all capital gains tax due at the time of sale.


What are the requirements for a valid exchange?
Qualifying Property – Property that has been or will be held for income production (rental), investment or used in a trade or business. Types of property that do not qualify for a 1031 exchange are: stocks, bonds, partnership or LLC interests, personal residences and stock in trade or inventory.

Proper Purpose/Qualified Use – Both the relinquished (old) property and the replacement (new) property must be used for productive use in a trade or business or for investment. Property acquired for immediate resale does not qualify for 1031 treatment.

Like Kind – Assuming the property satisfies the qualified use test, then the property must satisfy the “like kind” test. Real property is “like kind” to real property. Among the types of real property that are eligible for 1031 treatment are raw land, single-family homes, hotels, multifamily dwellings, factories, commercial office buildings, shopping centers, farmland, leases of 30 years or more, quarries, and oil fields. Basically, any type of real estate may be traded for another type of real estate as long as it satisfies the qualified use test. “Like kind” rules for personal property are more restrictive.

Exchange Requirement – The relinquished (old) property must be exchanged for other property, rather than sold for cash and the proceeds used to buy the replacement property. Most people use Qualified Intermediaries (QI) to facilitate their exchanges.

Concerns over Fannie & Freddie as Market Toils
News on the housing front continued to be negative over the last week. Both housing starts and building permits continued to decline while the NAHB Housing Market Index remained at an all-time low. Higher food and energy costs along with the threat of a weakening economy have done little to help lackluster housing demand. Builders are forced to continue to scale back on construction activity in order to shrink inventory supply. With the threat of inflation still lurking and leading economic indicators pointing towards slower economic growth ahead, it will continue to be a challenge to move homes in these market conditions.

Higher crude prices and troubles in the financial markets have returned in the past week to reignite fears of inflation and the possibility of a collapse by another large financial institution. Crude jumped almost 5% to over $121/barrel for October delivery in Thursday’s trading session due to geopolitical turmoil in Russia. Falling crude prices in the past few weeks gave the market some hope that headline inflation in the coming months would ease but a rebound in crude would maybe force the Fed’s hand to hike rates before the end of the year. A Barron’s article over the weekend also reignited fears that the government may have to step in and bail-out both GSE’s, Fannie Mae and Freddie Mac. That news has put pressure on financials all week long.

The Economy
The total number of homes started for construction fell again in July to just 965,000 units, an 11% drop from the level seen in June, and a 30% decline from the level seen in July 2007. The number of housing starts in July was the lowest they have been in 17 years. Both single and multi-family starts were lower in July with single-family starts falling 2.9% from the previous month while multi-family starts (5+ units) dropped 23.5% during that time. Total building permits plunged 17.7% in July from an inflated June figure due to the rush of multi-family issuances in New York City before new building codes went into effect. Single-family building permits fell 5.2% in July to its lowest levels since August 1982 while multi-family issuances dropped 35% from the previous month.

After remaining relatively stable in the last four months, leading indicators dropped in July indicating that further weakening in the economy can be expected in the months ahead. The leading index posted a 0.70 point drop in July to 101.20 from an upwardly revised June of 101.90. Only three out of ten components in the leading index posted monthly gains in July.

July's consumer inflation data showed inflationary price pressures continuing to linger in the economy due to higher food and prices. The CPI increased 0.8% in July on a seasonally-adjusted basis while the core CPI, which excludes often volatile food and energy prices, increased a seasonally-adjusted 0.3% in July. On an unadjusted basis, headline CPI increased 5.6% from its year ago levels while core CPI increased 2.5% year-over-year in July. Headline consumer prices posted its largest year-over-year gain since January 1991.

Housing Market
National average mortgage rates declined to 6.47% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on August 21st. Rates have not posted a weekly increase in the past four weeks. In the week ending August 15th, the MBA’s seasonally-adjusted Purchase Index declined to 314.0 from 315.2 in the previous week. The latest figure reflects a 0.4 percent decrease from last week and a 28.9 percent drop from the same period last year.

New and existing home sales both declined in June. New home sales in June declined for the second straight month after posting its first monthly increase since October 2007 in April. Sales eased 0.6% in June to a seasonally-adjusted 530,000 homes, down from a revised May figure of 533,000. Sales for the previous three months, however, were revised higher by 50,000 units. The number of new homes for sale continued to decline as builders continue to scale back production. New home inventory declined to 425,000 which is the lowest it has been since November 2004. In June, median new home prices rebounded from their lowest levels since December to $230,900.

Annualized sales of total existing homes in June declined after posting its first monthly increase since February last month. Sales declined 2.6% from May levels to 4,860,000 units. Sales of existing homes are down 15.5% from the 5.75 million units in June 2007. Median existing home prices in June increased for the fourth straight month to $215,100 from a revised $207,900 in May. This is the highest median existing home prices have been since August 2007. The number of existing homes for sale increased a slight 0.18% to 4.49 million units. At the current sales pace, there are 11.1 months of existing homes supply on the market. Existing home affordability declined for the fourth straight month due to increases in both mortgage rates and existing home prices in June.

NEW YORK (CNNMoney.com ) -- Prime mortgages are starting to default at disturbingly high rates - a development that threatens to slow any potential housing recovery.

The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier, according to LoanPerformance, a unit of First American (FAF, Fortune 500) CoreLogic that compiles and analyzes residential mortgage statistics.

Delinquencies jumped even more for prime loans of more than $417,000, so-called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.

And prime loans issued in 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006, according to LoanPerformance.

"The extent of how bad these loans are doing is very troubling," said Pat Newport, real estate economist with Global Insight, a forecasting firm.

Washington Mutual (WM, Fortune 500) CEO Kerry Killinger said last month that the bank's prime loan delinquencies are on the rise. As of June 30, 2.19% of the prime loans issued by WaMu in 2007 were already delinquent, compared with 1.40% of prime loans issued in 2005.

Also last month, JP Morgan Chase (JPM, Fortune 500) CEO Jaime Dimon called prime mortgage performance "terrible" and suggested that losses connected to prime may triple. For the second quarter, the bank reported net charges of $104 million for prime rate delinquencies, more than double the $50 million recorded three months earlier.
The latest shoe

Prime loans are just the latest class of mortgages to suffer a spike in failure rates. The first lot to go bad was, of course, subprime mortgages, whose problems set the housing meltdown in motion. Next were the Alt-A loans, a class between prime and subprime loans that doesn't require strict documentation of a borrower's assets or income.

Now, as prime loans are added to the mix, the resulting foreclosures could haunt the housing market for a long time, according to Global Insight's Patrick Newport.

"Home prices will drop for quite a while - maybe several years," he said.

Prices are already off nearly 20% from their 2006 highs, according to the S&P/Case-Shiller Home Price index.

And there's a strong inverse correlation between home prices and defaults, according to Lawrence Yun, chief economist for the National Association of Realtors.

"It's a feedback loop," he said. "Price declines lead to more defaults, which leads to more price declines."

More foreclosures will add to an already massive oversupply of homes on the market. Inventories are up to about 11 month's worth of sales at the current rate.

Indeed, about 2.8% of all homes for sale were vacant as of June 30, according to Census Bureau statistics. That's up about 50% from three years ago, and near historic highs.
More foreclosures, fewer loans

The failure of prime mortgages will also make it more difficult for new borrowers to find affordable loans - and that will slow sales even more. Lending standards have been tightening for months, but if prime loans start to look risky, lenders will be even more conservative about who gets a mortgage.

About 60% of the loan officers surveyed reported that they tightened lending standards for prime mortgages during the first three months of 2008, according to the April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve, which is released quarterly.

That number will likely be even higher for the second quarter, according to Mike Larson, a real estate analyst for Weiss Research. "It's already harder and more expensive to get loans," he said. "Lenders pull in their horns when things go south."

While easy credit fueled the housing boom, restricted credit is certainly contributing to the bust.

"Eventually," said Newport, "time will break the cycle. Pricing will drop enough to attract more buyers, and inventories will decline."

But there will probably more hard times ahead before markets come back into balance and recovery begins.

Former Federal Reserve Chair Alan Greenspan in an interview with the Wall Street Journal this week says he expects U.S. home prices to stabilize in the first half of 2009.

"Stable home prices will clarify the level of equity in homes, the ultimate collateral support for much of the financial world's mortgage-backed securities. We won't really know the market value of the asset side of the banking system's balance sheet ¡V and hence banks' capital ¡V until then," he said.

Greenspan had a one-word description for the government¡¦s response to Fannie Mae and Freddie Mac¡¦s problems ¡V ¡§Bad.¡¨

¡§[Congress] should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted ¡V with necessary taxpayer support to make them financially viable ¡V as five or 10 individual privately held units," which the government would eventually auction off to private investors, he said.

Source: The Wall Street Journal, David Wessel (08/13/2008)

Californians who bought natural hazard disclosure reports when they listed their homes with Coldwell Banker, Prudential California Realty, RE/MAX, Century 21 or ERA Real Estate could soon be entitled to full refunds as part of a proposed $39.3 million settlement of a class-action lawsuit.

The settlement agreement, which must still be approved by a federal district judge, stems from a lawsuit alleging that real estate brokers took kickbacks from the company that produced the reports, Property I.D. Corp., in exchange for referring business to the company. The kickbacks were allegedly paid through "sham" affiliated businesses, with brokers receiving about $25 for each report.

Property I.D. and the real estate brokerages that partnered with the company in three jointly owned affiliated businesses deny wrongdoing. But Property I.D. and some of the brokers it partnered with have signed agreements with the Department of Housing and Urban Development stipulating that natural hazard disclosure reports are settlement services governed by the Real Estate Settlement Procedures Act, or RESPA.

RESPA prohibits companies from creating sham businesses for the sole purpose of splitting profits from the sale of settlement services such as title insurance. The three affiliated businesses HUD alleged were established to funnel kickback payments to real estate brokers all had the same Los Angeles address, phone number and bank accounts as Property I.D., and no employees of their own.

HUD launched its own investigation of Property I.D. and its partners in August 2005, several weeks after a class-action suit was filed in U.S. District Court in Los Angeles on behalf of Mark and Rachelle Berger and others who listed their homes for sale through the brokerages. HUD brought its own lawsuit against Property I.D. and its partners in May 2007, after Property I.D. sued HUD in an attempt to bring the nearly two-year investigation to a close (see story).

In its suit, HUD claimed that real estate brokerages steered clients using methods that included listing contracts naming Property I.D. as the default provider of natural hazard disclosure reports. The reports were priced at $99 to $114.

After deducting $50 per report to cover expenses, Property I.D. allegedly split the remaining $50 profit with referring brokers, making payments on a quarterly basis, HUD claimed. Brokers also instructed agents to advise buyers to purchase the reports, even though they were under no obligation to do so under California law.

California requires that sellers provide natural hazard disclosures for properties located in areas prone to flooding, fire, earthquake or landslides. The disclosures must be made on standardized forms and can be prepared by the seller, the seller's agent or a third-party consultant. Although some Property I.D. competitors charge less, the company claims its reports are more thorough.

Property I.D. and the real estate brokerages sued by HUD argued that because natural hazard disclosure statements are not specifically mentioned in RESPA, their marketing and sale was not subject to the law's requirements. Even if RESPA did apply to the disclosure reports, HUD did not have the legal authority to require the "disgorgement" or return of profits generated by the joint ventures, attorneys for the defendants claimed.

In a statement, Realogy spokesman Mark Panus said HUD's lawsuit "was the first public indication that these disclosures, unique to California, are considered settlement services."

While natural hazard disclosures didn't exist when RESPA was written and aren't specifically mentioned in the law, they are clearly settlement services if they are required by states, said Barry Himmelstein, the San Francisco-based attorney who filed the class-action lawsuit. HUD is not obliged to update RESPA to list changing requirements for real estate transactions that vary by state, he said.

"I share HUD's view that (natural hazard disclosure reports have) always been a settlement service subject to RESPA," Himmelstein said. "The argument that (they are not) has always seemed to me to be patently frivolous."

HUD spokesman Brian Sullivan said that with the pending settlement of the class-action lawsuit, HUD has reached an agreement with Property I.D. that does not involve payments, but which acknowledges that the reports are settlement services and bars the company from engaging in practices that violate RESPA. Similar agreements are pending with the brokers that partnered with Property I.D.

Sullivan said the lawsuits have not only put to rest the question of whether natural hazard disclosure reports are subject to RESPA, but establish HUD's authority to seek disgorgement of illegal profits.

In a press release, Property I.D. put a positive spin on its settlement with HUD, calling it "a dramatic example of how the government and the real estate industry are working together to establish new practices for California home buyers and sellers."

Property I.D. claimed the agreement "protects" companies that prepare natural hazard disclosure reports because payment for the reports will now be collected as part of escrow, "requiring a significant change in every escrow company's standard procedures."

Home owners are quite aware of the slow housing market, but most of them don¡¦t think the trend is affecting their property, according to recent survey of 1,361 home owners.

Harris Interactive conducted the Homeowner Confidence Survey on behalf of real estate Web site Zillow. Results show that nearly two out of three (62 percent) home owners think their home value has increased or remained the same in the past year.

However, 77 percent of U.S. homes lost value in the past 12 months, according to preliminary analysis of Zillow's Q2 Real Estate Market Reports, due to be released August 12. Only 19 percent of homes increased in value, and 5 percent remained the same.

Another interesting finding from the survey: Home owner¡¦s optimism about real estate prices doesn't extend to neighboring homes, as 42 percent expect values in their local market to drop and 58 percent think values will increase or remain the same.

The survey underscores a wide gap between home owners' inflated perception of their home values and the market reality. To monitor this perception-reality gap over time, Zillow has created the Home Value Misperception Index, which is the difference between the adjusted percentage of home owners who believe their home value increased over the past year and the adjusted percentage of homes that have increased in value.

Nationwide, the second quarter Home Value Misperception Index is 32, reflecting this broad gap. Those in the West, which has the highest proportion of homes (88%) that declined in value during the quarter, seem to have the best grasp on reality with a Misperception Index of 23, while those in the South have the widest gap at 36.

¡§We attribute this gap to a combination of inattention and a fair bit of denial that causes people to believe their home is insulated from the woes of the market that affect others, but not them," said Dr. Stan Humphries, Zillow vice president of data and analytics.

Foreclosure rescue scams, in which con artists prey on struggling home owners, are becoming more of a problem, according to the Federal Trade Commission.

The FTC has already filed three major foreclosure rescue cases this year, compared with zero a year ago; and one case involves thousands of victims and property worth millions of dollars, according to FTC regional director Brad Elbein, who heads the agency's foreclosure rescue campaign.

Some scammers promise to negotiate with a lender for a fee, then just take the money and run. In other cases, home owners pay rent to live in the house but sign title to a rescue company that is supposed to pay the mortgage. Instead, the company sells the house, taking whatever equity is left.

At least 14 states have passed new laws this year to protect home owners, including a new one in Idaho that requires a written contract with a rescue company and gives homeowners five days to change their minds.

"The scope is probably going to be potentially as large as the mortgage fraud problem itself," says Sharon Ormsby, the FBI's chief of financial crimes.

Source: USA Today, Donna Leinwand (08/04/08)

The home of well-known Dallas real estate practitioner Eleanor Mowery Sheets is likely to be seized this week by the federal government to satisfy tax liabilities totaling more than $1.8 million.

The Internal Revenue Service won a tax judgment from Sheets and her husband, Nicholas "Nicky" Sheets, in 2003, and government lawyers say in court filings that they've been trying to collect the money ever since.

Along with the unpaid personal income taxes, the government is also suing one of the Sheets' businesses, Dallas EMS LLC, for $236,411 in unpaid employment and unemployment taxes.

The government charges that the Sheets transferred their $1.4 million home to a "sham trust" to avoid seizure.

The Sheetses refused to comment on their legal situation.

Eleanor Mowery Sheets and Associates specializes in high-end home sales. The firm's annual sales volume tops $100 million.