Myrtle Beach Real Estate Information

Here's a tax alert for real estate investors who use popular tax-free exchanges: The recently signed federal housing legislation contains a hidden zinger that could cost you thousands of dollars if you don't plan around it.

As of next January 1st, investors who exchange into rental or second home properties that they later convert into their personal homes no longer will be eligible for the full $250,000 to $500,000 tax-free exclusions now available on sales of principal residences.

Instead, they'll need to allocate their time of ownership between taxable investment or second home usage and non-taxable principal residential usage.

To qualify for tax-free exclusions they'll still need to use a property as their primary home for two out of the five years preceding any sale or exchange. But if any part of their total usage time after January 1st is what the new law calls "nonqualified" -- that is, investment, rental or second home use - then that will lower their maximum exclusion.

This an especially big deal for investors using "Section 1031" exchanges because they frequently shield their real estate gains on rental houses and condos by moving into them for a couple of years and converting previously taxable gains into non-taxable principal residential profits.

Just how popular has that technique been in recent years? "Extremely popular," says tax-free exchange intermediary George Foss in Littleton, New Hampshire. "Many of my clients have used it because it's a way to totally shield yourself" from capital gains taxation.

Congress's new limitation of the strategy is "terrible in my opinion," said Foss in a discussion with Realty Times last week. "It's just rotten."

An example of the dollars and cents impact of the change was provided by the Federation of Exchange Accommodators, a national trade group representing investors and intermediaries. Under the old law, an investor could exchange into a property that he or she then rents out for three years. Then the investor would move in and use the property as a principal residence for two years.

When the investor -- who is single -- sold the house for a $300,000 gain, $250,000 of that amount would be tax-free under the old law.

Under the new law, three fifths of that gain -- $180,000 out of the $300,000 -- would be taxable, while just $120,000 would be tax free.

That $130,000 difference is why exchange investors are so upset with Congress's latest tax increase.

From Barn Raisings to Home Building, By NANCY KEATES

The Amish have long been famous for barn raisings. Now, they're becoming known for building houses for the non-Amish, often using ancient construction techniques.

About 600 Amish contractors or subcontractors work in at least a dozen states, a rapid increase over the past decade, says Donald B. Kraybill, who has written more than a dozen books on the conservative Christian sect. Not only do some of them specialize in the timber-frame construction method that doesn't use nails, they often can erect a house faster and for less money than traditional contractors, customers say.

Yet working with an Amish builder brings special challenges. Imagine trying to keep in touch with a contractor who doesn't own a phone -- most are forbidden to have one at home. They also aren't allowed to drive, so they need a driver or other means to get to the job site. Few use computers, have insurance or will sign a detailed construction contract.

But some customers are willing to put up with these constraints for what they say is a better-built house. Kevin Heitland was so impressed by the workmanship of a friend's timber-frame house put up by Amish builder Danny Schwartz that he hired Mr. Schwartz for his new lake house south of Branson, Mo. The builder framed the 2,200-square-foot house using wooden pegs in less than a month, for a total cost of $129,000, including the exterior walls, insulation and three porches. (Other workers finished the interior.)

Mr. Heitland, a convenience-store owner in Nixa, Mo., says the work Mr. Schwartz did would have cost at least a third more and taken twice as long if he had used regular contractors. Now he plans to commission the same Amish builder for a spec house he plans to sell. "Their workmanship is second to none," Mr. Heitland says.

Customers such as Mr. Heitland are turned off by the anonymous and sometimes sloppy work of mass home builders. The Amish are known for careful woodworking, whether using the timber-frame technique, in which thick beams are assembled with wooden pegs and mortise-and-tenon joints, or the conventional "stick frame" approach using machine-milled lumber and nails. And in an industry known for unreliability and corner-cutting, the Amish -- a community known for its work ethic -- can be refreshing, customers say.

Of course, there are plenty of non-Amish builders who take pride in their craftsmanship. Some use similar old-fashioned techniques, including timber frame. "There are good and bad contractors. It is more based on what someone is willing to pay than on whether the contractor is Amish or not," says Stephen Risser, head of the Department of Building Regulations in Richland County, Ohio. He estimates that work by Amish contractors and subcontractors makes up 20% of his department's inspections.

Amish builders trim costs by using family members as workers and keeping their overhead low. Many don't buy insurance, since their communities often have insurance pools to help pay hospital and other medical bills if a member gets sick or injured. (People who use Amish builders may need to buy their own liability policies.) Unlike many general contractors who use subcontractors, Amish builders tend to do all the construction themselves. That cuts out middlemen and allows them to immediately correct any problems on a job.

Matt Breyer, owner of Breyer Construction in Reading, Pa., says he regularly competes against Amish builders and "we usually get slaughtered" in pricing. He says a chief reason is his need to pay for unemployment benefits, worker's compensation and insurance. He lost a job last year to install a custom deck after he bid $50,000 and an Amish contractor bid half that, he says.

And while Amish contractors are hampered by the sect's restrictions, they find ways to work around the rules: Many can't own power tools -- but they can rent or borrow them. They aren't allowed to drive -- but they can use a car with a hired driver. Use of phones is banned at home -- but many are permitted to use cellphones for business or if someone else owns the phone, like the non-Amish driver.

"There's no question it is harder to get in touch with me," says Mr. Schwartz, the Amish builder who erected Mr. Heitland's lake house. Though Mr. Schwartz works out of El Dorado Springs, Mo., he has built houses as far away as Colorado and Montana. He says he has a driver but has also used taxis and gets rides from clients. Though computers are taboo, he hires non-Amish to do three-dimensional pictures of his hand drawings. In his shop, his tools are driven by horsepower using a contraption that resembles a merry-go-round, allowing up to four horses to turn steel shafts that are geared to saws and planers. But in the field he uses a non-Amish person's power tools.

Some Amish use non-Amish as conduits for their construction businesses. Cindy Shepherd, a real-estate agent at Mike Thomas Associates/ F.C.Tucker in Fort Wayne, Ind., agreed to develop a Web site and handle open houses and referrals for an Amish-owned builder of both spec and custom homes.

Deanna Vickery turned to Amish Timber Framers in Doylestown, Ohio, when she bought her grandparents' farm in nearby Dover, Ohio, and wanted to put an addition on the 100-year-old barn. Although the Amish generally aren't allowed to watch TV, if they happen to be in a room where the TV is on, they don't have to leave. As a result, she would be asked to show up at lunchtime to turn on football games for the workers. Mrs. Vickery says she quickly became friends with the crew, inviting them and their families to her annual pig roast.

About 20 years ago, the Amish started to diversify out of farming when it became clear that subdividing a farm among sons wasn't sustainable as their population grew and land costs made buying new property prohibitive. The Amish population has about doubled since then to an estimated 231,000 nationwide, says Mr. Kraybill, the author, who also is a senior fellow at Elizabethtown College in Elizabethtown, Pa. Many became entrepreneurs, carpenters, factory hands and artisans. Now, more than 70% of Amish household heads pursue nonfarm lines of work, Mr. Kraybill says. Typical Amish thinking views work as an overwhelmingly positive and even formative element of life, says Erik Wesner, a scholar who studies the Amish and runs a blog about them.

Cindy Wagner, a 41-year-old surgical technician in Fort Wayne, Ind., used Amish builder Lee Schmucker's Imperial Homes to erect her 2,500-square-foot house. It was finished in 4½ months and cost $410,000, including high-end tiles and a walk-in shower, she says. "They were there every day, regardless of weather, and they did exactly what they said they would do -- and more," Ms. Wagner says. While she got a comparably priced quote from a non-Amish builder she went with Mr. Schmucker because she liked his work on one of his spec houses. "The craftsmanship was beautiful," she says.

Paul Hackett, an attorney in Cincinnati, chose an Amish builder to help put an addition on his 208-year-old house because it was the only company he found that could match the home's exposed, hand-hewn beams. Though he had to rent a trailer to fetch the beams from the Amish builder's shop, he says the process was fairly simple. "There are lots of painful experiences when you build a house, but not this," he says.

But sometimes the communications issues can be too much. Jim Zik, a telecom product marketing manager in Mount Airy, Md., heard from others about the quality of Amish builders and their low pricing. Mr. Zik says he tried for nine months to find an Amish home builder, putting out messages on Internet sites, asking Amish barn builders and talking with friends. Finally, he gave up. "I have a lead on a Mennonite now," he says, speaking of a related Christian sect also known for construction work. "They are allowed to drive and have phones, so it should be easier."

Bright Spot in a Bad Economy, By BILLIE COHEN

IN these tough times, with gas prices setting records and airfares skyrocketing, many people are lucky to have jobs, let alone time to take a vacation. And yet there’s some good news for second-home owners hoping to rent out an investment property: vacationers are turning to these rentals more than ever.

"As the economy sours, demand for vacation home rentals increases, as rental homes are seen as inexpensive alternatives to luxury hotels,” said Douglas Pope, a founder of HotPads.com, a real estate search engine. “Also, people are now beginning to divert their vacations to more local spots where rental homes are an option.”

Not that you should run out and buy an investment property with the hope of getting rich on rentals or a short-term flip.

“If you’re going to flip it in a year or two, this is not the thing to do,” said Anne-marie Boyer, a broker with San Diego’s Finest Real Estate. “You need to plan to be in it for the long haul.”

“Vacation rentals as a category are growing well in the U.S.,” said Justin Halloran, managing director of United States brands for HomeAway, a group of vacation-rental Web sites. “They are taking shares from hotels because they give more space, freedom and amenities than hotels” — like kitchens, private pools and more bedrooms for less money.

Mr. Halloran said that both supply and demand are going up, particularly in what are called “drive markets,” regions that vacationers can reach by car, like the Hamptons in New York or Ocean City, Md.

In the second quarter of 2008, inquiries about vacation rentals in Las Vegas on HomeAway.com increased 67 percent from the same period in 2007, and the supply of properties was up 31 percent. Similarly, in Palm Springs, Calif., demand went up 58 percent and supply 31 percent; and in Manhattan, demand grew 166 percent and supply 108 percent.

So if you bought a second property to rent out, you’re not necessarily in for a dry spell. And while your first thought might be to hire a property manager to find tenants, that’s not necessarily your best option.

“You need to be very cautious in choosing your property manager, and be sure to have a firm understanding of what is expected from their services,” Mr. Pope said. “You should also not necessarily leave all the marketing up to the property manager. They generally have a lot of properties in their portfolio to worry about; you may want to give your own property special attention.”

To do that, look to online vacation-rental listings you can publish yourself, which can give you a wide audience with little effort. Some of these sites, like HotPads.com and Craigslist.org, offer free listings, while others, like VRBO.com and HomeAway.com, provide a number of services based on a subscription fee.

“My first recommendation, to the extent that your budget allows it, is to buy multiple subscriptions,” Mr. Halloran said. “You’ll reach different audiences.”

And don’t ignore the overseas market. “I wouldn’t recommend that someone, say, with an apartment or condo on the Texas Gulf should advertise in the U.K.,” Mr. Halloran said, “but if you’ve got a place in Orlando, you’re probably going to get some good demand from Germany and the U.K.”

The next step is to make sure that your listing stands out from the rest, by doing things like “taking the right photos, writing compelling titles and making sure your availability calendar is updated,” Mr. Halloran said. Photos, he said, are the most important factor.

“A lot of people have owned their property for a while,” said Robert Boyer, a real estate investor adviser with San Diego’s Finest Real Estate. “They can drop their rates a little bit and still come out with a positive cash flow, or at least not a negative cash flow. Whereas people who’ve bought more recently have a more difficult time.”

If you aren’t having much luck, consider offering a different kind of incentive. On HomeAway.com, Mr. Halloran has seen people offer a free eighth day on a seven-day stay or no cleaning fee. “There was one in Maine that offered a free bucket of live lobsters and a bucket of beer,” he said.

Clearly, with a little online savvy, a little creativity — and maybe a little beer — you can still find renters.

House majority opposes RESPA reform proposal, By Inman News

HUD urged to work with Fed on disclosures

More than 240 of members of the House of Representatives have signed a letter urging federal regulators to withdraw their proposed changes to the Real Estate Settlement Procedures Act (RESPA) and work with the Federal Reserve on simplified disclosure forms instead.

The Department of Housing and Urban Development maintains its proposed changes to RESPA would save consumers $8.35 billion a year by helping them shop for the best deal on a loan, title insurance and other settlement services.

HUD says it's trying to protect consumers from overcharges and to promote competition between mortgage lenders and settlement services providers. But the real estate industry has steadfastly opposed HUD’s proposed changes to RESPA, saying they would lead to industry consolidation that would ultimately harm consumers.

The Fed has also urged HUD to work with it to develop a single form that complies with both RESPA and the Truth In Lending Act (TILA), to protect consumers from "information overload."

In commenting on HUD's proposed RESPA rule changes in June, Fed officials said they were concerned that the proposed TILA and RESPA forms are "duplicative and in some instances inconsistent," and urged HUD "to coordinate its proposal with the (Fed) to ensure that consumers receive information on loan terms and settlement costs on a single form at the same time."

Reps. Ruben Hinojosa, D-Texas, and Judy Biggert, R-Ill., and 240 of their House colleagues made similar arguments in an Aug. 7 letter to Housing Secretary Steve Preston, urging him to work with the Fed on simplified mortgage and settlement cost disclosure forms.

"To expedite this process, we also ask that you discard the hundreds of pages of HUD's current proposed RESPA rule that have not previously been the subject of public comment and cover a number of subjects beyond disclosures," the letter said – an allusion to incentives HUD proposes to create for packaging settlement services such as title insurance with loans.

The letter, which also warned of the impact of the rule changes on small businesses, was signed by 128 Democrats, 113 Republicans, and Texas independent Ron Paul, according to a copy posted on the Web site of the American Land Title Association.

Hinojosa and Biggert led the charge against proposed RESPA rule changes in 2004, drafting a letter that asked the Office of Management and Budget to reject a plan that encouraged the packaging of loans and settlement services. That letter was signed by 226 lawmakers, and HUD ultimately withdrew its proposal.

HUD's latest proposed changes to RESPA, unveiled in March, would provide less explicit incentives for packaging. HUD also proposes a new "Good Faith Estimate" that would require loan originators to credit yield spread premiums against borrower's closing costs. The premiums are rebates paid by lenders when borrowers take out loans with higher interest rates than they might otherwise qualify for.

The National Association of Mortgage Brokers and other critics of HUD's proposed treatment of yield spread premiums maintain that banks charge similar fees that aren't disclosed on the GFE, and that HUD's solution won't help consumers pick the best loan. NAMB and other groups convinced the Fed to back down from a plan to require disclosure of yield spread premiums as part of TILA loan disclosures, although the Fed has said it will continue to study the issue (see story).

In the past, HUD has said consumer testing demonstrates its proposed disclosure forms will enable consumers to pick the best loan offer and settlement services package.

HUD spokesman Jerry Brown said today that the department would "consider everything the members (of Congress) have asked us to consider." Any comment from HUD on the letter would be made to those who signed it first, Brown said.

Long-term mortgage rates hold steady, By Andrew Tangel, CNNMoney.com contributing writer

U.S. housing market still in turmoil and dragging down nation's economy

NEW YORK (CNNMoney.com) -- Interest rates for long-term mortgages held steady this week as the troubled housing market continued to weigh on the nation's economy, Freddie Mac reported Thursday.

The government-backed mortgage finance giant said rates for 30-year fixed-rate mortgages averaged 6.52% for the week ending Thursday, unchanged from last week.

The recent average remains lower from the same time last year when rates for 30-year fixed-rate mortgages averaged 6.59%.

The news came as the housing market - with record foreclosures and sinking home sales prices - continued to take a toll.

"The housing market is continuing to act as a drag on the economy," Frank Nothaft, Freddie Mac's vice president and chief economist, said in a statement. "Residential fixed investment subtracted 0.6 percentage points off second-quarter growth in real GDP."

Inventory still high. Mortgage applications increased slightly for the week ended Aug. 1, but were still much lower compared with the same week last year, the Mortgage Bankers Association said Wednesday.

The MBA said its Market Composite Index -- a measure of mortgage loan application volume -- was 432.6, up a seasonally unadjusted 2.4% compared with the previous week and down 33.7% from a year earlier.

"Although showing some initial signs of improvement, the inventory of unsold homes remains at historically high levels," Nothaft said.

There was some promising housing news on Thursday, however. The number of pending homes for sale rose 5.3% in June, a surprise rebound from the previous month, according to the National Association of Realtors. However, sales are still down 12.3% from last year. (Full story)

The country's homeownership rate, meanwhile, essentially held steady during the second quarter of this year, compared to the previous quarter and second quarter of 2007, according to the U.S. Census Bureau.

Freddie Mac (FRE, Fortune 500) said 15-year fixed-rate mortgages this week had rates averaging 6.10%, an increase from last week when they averaged 6.07%. A year ago, the 15-year mortgages averaged 6.25%.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 6.05% this week, down from last week when they averaged 6.07%. A year ago, the 5-year ARM averaged 6.33%, Freddie Mac said.

One-year Treasury-indexed ARMs averaged 5.22% this week, down from last week when it averaged 5.27%. A year ago, the one-year ARM averaged 5.65%.

Technology That Can Help With a Home Sale

In a recent story called the Virtual Vacation Home, I wrote about how some vacation home owners are using inexpensive Webcams to market their homes on the Internet. Since the vast majority of buyers and renters start looking for a place on the Web, it makes sense to add a webcam to your home's online profile.

But Webcams aren't the only unusual way that sellers and landlords are using technology to make their homes stand out. In fact, many owners are borrowing tools that were originally marketed to real estate agents to make them more interactive and compelling. Here are three that are becoming more popular:

Virtual tours: Though they take a lot of time to view and sometimes make you dizzy, virtual tours are nearly ubiquitous on real estate agents' Web sites these days. That wasn't true a few years ago, because the tours required hiring photographers with special cameras, at costs running into the hundreds of dollars.

But costs for professional photographers have dropped dramatically. And with a rotating tripod, a photo-stitching system, a digital camera -- and a lot of patience -- do-it-yourselfers can produce virtual tours, too.

Once you have the video in hand, you can upload it on your home's Web site, or on one of several sell-it-yourself Web sites, like ForSaleByOwner.com and BuyOwner.com.

Real Estate E-Cards. Hoping to cash in on the e-card craze, August Gilges, an entrepreneur in Portland, Ore., came up with the "real estate e-card": a short photo montage of a property set to background music, from a crackling fire to a string quartet. Though an e-card might seem too commercial for sending season's greetings to Grandma or declaring your love to your Valentine, it's a relatively low-key way to alert potential buyers that your house is for sale, particularly in the traditionally slow times around major holidays. Single-use cards themed to an event (think a backyard grill for Memorial Day) cost $20, while an annual subscription with unlimited use of all the cards is $150. Or, if you're happy with a single image rather than a photomontage, you can make up a card for free on Ecards-gallery.com.

Talking signs. On their face, chatty yard signs are simple, even mysterious. Interested parties can call a toll-free number and plug in the digits for more information, like location, price, size and maybe a description of the built-in backyard grill or the Tara-like staircase. The spiel runs 24 hours a day.

That's an advantage for sellers, who don't have to run out and replenish printed listing sheets in a plastic box on their front yards. But it's also a risk, since buyers who don't have cell phones handy might lose interest and drive on by.

Nevertheless, talking signs have become so cheap in recent years that they're worth considering. For example, Front Royal, Va. company Home Phone sells a 18- by 24-inch talking yard sign for $10.95, plus a $2 monthly fee.

Best of all, they allow an owner to keep embarrassing details, like whether the house will be auctioned or is in foreclosure, out of sight of the neighbors...if not out of earshot.

Fannie, Freddie Do More

Fannie Mae and Freddie Mac, trying to contain mortgage-default losses, are redoubling efforts to prevent foreclosures.

In some cases, though, these moves may only delay the inevitable, easing pressure on the companies' finances in the short term without resolving their troubles.

The two U.S.-government-sponsored guarantors of home loans last week said they will increase fees they pay loan-servicing companies for "workouts" that prevent foreclosures. (Servicing companies collect loan payments and handle other administrative tasks.) Freddie also said it will give servicers more time to pursue such workouts.

Both companies emphasized that they want to keep families in homes. But Joshua Rosner, an analyst at the New York research firm Graham Fisher & Co. and frequent critic of the companies, said they were trying to conserve cash. "It seems they would rather pay servicers to keep the losses rolling into the future even if close to a majority of borrowers redefault because they are unable to handle the mortgages," Mr. Rosner said.

Under Freddie's new incentives, loan servicers will be paid $800 for modifying the terms of a mortgage to avoid foreclosure, up from $400. Freddie also agreed to raise the amount it pays servicers for arranging short sales -- in which a lender accepts less than the full amount owed on the loan when a home is sold -- to $2,200 from $1,100. Fannie announced similar increases in incentives.

In places with relatively quick foreclosure processes, Freddie said it will allow servicers as many as 300 days from the due date of the last payment to seek alternatives to foreclosure. This policy applies to Alabama; Alaska; Arizona; Arkansas; California; Georgia; Hawaii; Maryland; Michigan; Minnesota; Mississippi; Missouri; New Hampshire; North Carolina; Rhode Island; Tennessee; Texas; Virginia; West Virginia; Washington, D.C.; and Wyoming. Freddie said the new policy doesn't apply in other states, where the foreclosure process normally takes more than 300 days.

Late last year, Fannie and Freddie both adopted policies that delay the need to recognize losses on some delinquent loans. The two companies guarantee payments on loans that back mortgage securities held by others. If borrowers default on those loans, Fannie and Freddie have to compensate the investors. Until December, Freddie's policy generally was to buy problem loans from the investors shortly after they become 120 days overdue. Now, it can wait until payments are as much as 24 months overdue. Fannie made similar changes late last year.

When Fannie and Freddie buy delinquent loans from investors, the companies must mark the loans down to estimates of their current market value.

In another step aimed at slowing the flood of foreclosures, Fannie earlier this year began offering to finance unsecured loans of as much as $15,000 to people who have fallen behind on their mortgage payments. These loans are designed to allow the borrowers to pay the past-due amounts on their mortgages. These 15-year loans are aimed at people who fell behind on their payments because of a temporary financial squeeze -- caused, for instance, by a divorce, death in the family or medical problem -- but who can afford to meet future monthly payments, Fannie officials have said. Some critics say the loans may be just a stopgap that saddles people with additional debt they can't afford.

Fannie and Freddie have reported combined losses of about $11 billion for the nine months ended March 31, largely because of defaults. Freddie is due to report second-quarter results Wednesday. Fannie also is expected to report results for the quarter soon but hasn't announced a date.

Last ditch attempt to preserve seller-funded gifts, By Inman News

Legislation would amend housing bill's FHA provisions

Legislation introduced in the House by Al Green, D-Texas, would scuttle plans to eliminate seller-funded down-payment assistance as an option for loans guaranteed by the Federal Housing Administration, but allow FHA to implement risk-based premium pricing.

The Bush administration has sought to end the practice of allowing seller-funded "gifts," saying they artificially inflate home prices and triple the likelihood a loan will default. Supporters, who say minorities will be disproportionately affected if the programs are abolished, had thwarted the Department of Housing and Urban Development's previous attempts to end the practice (see story).

But beginning Oct. 1, the sweeping housing bill signed into law last week by President Bush, HR 3221, will prohibit FHA from recognizing seller-funded "gifts" from nonprofits that are largely funded by home builders as a valid form of down-payment assistance (see story). Borrowers would still be able to use gifts from family members, charities and employers to meet FHA's new 3.5 percent minimum down-payment requirements.

A bill introduced Thursday by Green, HR 6694, would allow FHA to continue to recognize seller-funded down-payment assistance when borrowers have a FICO score of 680 or greater. Borrowers with FICO scores of between 620 and 680 would also be able to rely on seller-funded gifts of up to 3 percent of their loan principal, but would have to pay increased mortgage insurance premiums.

Green's bill -- introduced the day after Bush signed HR 3221 into law -- would also allow borrowers with FICO scores of 619 or less to rely on seller-funded down-payment assistance beginning in fiscal year 2010, if HUD determines that the loans can be insured without incurring taxpayer expense.

FHA loan guarantee programs have historically been self-sustaining, with mortgage insurance premiums covering claims. The Bush administration has said that because of their higher default rates, loans relying on seller-funded gifts threaten to put the program in the red.

In another attempt to avert the need for a taxpayer subsidy, HUD has sought to implement risk-based premium pricing, saying it would allow FHA to operate more like private mortgage insurers.

Traditionally, all FHA borrowers have paid 1.5 percent of their loan balance up front, and 0.5 percent a year for insurance. Under risk-based pricing, the upfront premium would range from 1.25 percent to 2.25 percent, depending on credit score. HUD says the difference amounts to no more than $7 a month on a $150,000 mortgage.

Although HUD went to a risk-based pricing model on July 14, HR 3221 places a one-year moratorium on its implementation, beginning Oct. 1, 2008 and ending Sept. 30, 2009.

As a carrot to the administration, Green's bill would allow FHA to implement risk-based pricing -- with a provision that borrowers who pay higher premiums eventually receive partial refunds if they stay current on their loans.

HR 6694 is co-sponsored by Democrats Rep. Maxine Waters of California and Christopher Shays of Connecticut, and California Republican Rep. Gary Miller

Investor Report: New Housing Bill & Tax Benefits, By Kenneth R. Harney

Foreclosure relief for home owners may be getting all the press on the new housing bill signed into law by the President this Wednesday. But there's plenty of tax-related goodies sprinkled through the bill's nearly 700 pages for sharp-eyed real estate investors.

Start with the low-income housing tax credit program -- the federal government's biggest source of support for affordable rental complexes -- driven mainly by tax shelter offerings.

The bill basically increases the size of the program, at least temporarily, by raising the current state-by-state volume limitations on tax credits. Put another way, the bill expands the number of potential deals supported by credits that developers and investors can do through the year 2009.

It also streamlines many of the technical regulations that govern the housing tax credit program, and simplifies the rules on the use of state tax-exempt multifamily bonds to finance tax credit projects. On top of that, it eliminates current IRS restrictions that prohibit the use of low-income housing and rehabilitation tax credits to offset the alternative minimum tax.

Elsewhere in the bill, tax rules affecting real estate investment trusts (or REITs) are significantly streamlined. Although the details of the changes are mainly for green eye-shade accountants and lawyers, the bottom line is that the REIT industry welcomes the changes and believes they will be good for business.

That's important because stockholder-owned REITs represent one of the most efficient ways for small investors -- and big institutions -- to put money into commercial and residential real estate, as well as into mortgages.

The housing bill also sweetens the pot for Gulf Opportunity Zone (or GO Zone) developments -- a tax resource for real estate and other investors in the hurricane-damaged areas of Alabama, Mississippi and Louisiana. As we've mentioned a number of times here on Realty Times, when the government will pay you to invest in an area where property values can only go up -- you ought to take a hard look at it.

The latest changes waive the start-construction deadlines for certain properties eligible for bonus depreciation in the GO Zone, and allow property investors and developers to amend federal tax returns to take into account their receipt of hurricane-related recovery grants.

Inflation Concerns Ease as do the Mortgage Rates

McLEAN, VA -- Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 6.52 percent with an average 0.7 point for the week ending July 31, 2008, down from last week when it averaged 6.63 percent. Last year at this time, the 30-year FRM averaged 6.68 percent.

The 15-year FRM this week averaged 6.07 percent with an average 0.6 point, down from last week when it averaged 6.18 percent. A year ago at this time, the 15-year FRM averaged 6.32 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.07 percent this week, with an average 0.6 point, down from last week when it averaged 6.16 percent. A year ago, the 5-year ARM averaged 6.29 percent.

One-year Treasury-indexed ARMs averaged 5.27 percent this week with an average 0.6 point, down from last week when it averaged 5.49 percent. At this time last year, the 1-year ARM averaged 5.59 percent.

"Mortgage rates moved lower this week as a drop in commodity prices eased market concerns over inflation pressures," said Frank Nothaft, Freddie Mac vice president and chief economist. "For instance, the Department of Energy reported that gasoline prices were the lowest since the end of May, and oil prices were at levels not seen since early May."

"Meanwhile, there were mixed reports this week on the state of the U.S. housing market. While the months of supply for existing single-family homes for sale rose to 11 months in June, the supply of new homes fell for the second consecutive month to 7 months. Further, the seasonally-adjusted U.S. homeownership rose slightly from 68.0 percent in the first quarter of this year to 68.1 percent in the second, yet still below the 68.3 percent set in the second quarter of 2007."

1031 Tax Exchange 101

A 1031 exchange, otherwise known as a tax deferred exchange, is a simple strategy and method for selling one property, that’s qualified, and then proceeding with an acquisition of another qualified property within a specific time frame. The logistics and process of selling a property and then buying another property are practically identical to any standardized sale; a “1031 exchange” is unique because the entire transaction is treated as an “exchange” and not just as a simple sale. It is this difference between “exchanging” and not simply buying and selling which, in the end, allows the taxpayer(s) to qualify for a deferred gain treatment. So to say it in simple terms, sales are taxable with the IRS and 1031 exchanges are not.

Due to the fact that exchanging, a property, represents an IRS-recognized approach to the deferral of capital gain taxes, it is very important for you to understand the components involved and the actual intent underlying such a tax deferred transaction. It is within the Section 1031 of the Internal Revenue Code that we can find the appropriate tax code necessary for a successful exchange. We would like to point out that within the Like-Kind Exchange Regulations, issued by the US Department of the Treasury, we find the specific interpretation of the IRS and the generally transaction.

The extent that either of the rules (above) is violated will determine the tax liability accrued to the person executing the Exchange. In any case which the replacement property purchase price is less, there will be a tax responsibility incurred. To the extent that not all equity is moved from the relinquished to the replacement property, there will be tax. This is not to say that the (1031) exchange will not qualify for these reasons. Keep in mind, partial exchanges do in fact, qualify for a partial tax-deferral treatment. This simply means that the amount, of the difference (if any), will be taxed as a boot or “non-like-kind” real estate property.

The 1031 Exchange Rule & Timelines

The 1031 Exchange Rule

A property transaction can only qualify for a deferred tax exchange if it follows the 1031 exchange rule laid down in the US tax code and the treasury regulations.

The foundation of 1031 exchange rule by the IRS is that the properties involved in the transaction must be “Like Kind” and both properties must be held for a productive purpose in business or trade, as an investment.

The 1031 exchange rule also lays down a guideline for the proceeds of the sale. The proceeds from the sale must go through the hands of a “qualified intermediary” (QI) and not through your hands or the hands of one of your agents or else all the proceeds will become taxable. The entire cash or monetary proceeds from the original sale have to be reinvested towards acquiring the new real estate property. Any cash proceeds retained from the sale are taxable.

The second fundamental rule is that the 1031 exchange requires that the replacement property must be subject to an equal or greater level of debt than the property sold or as a result the buyer will be forced to pay the tax on the amount of decrease. If not he/she will have to put in additional cash to offset the low debt amount on the newly acquired property.

1031 Exchange Rules and Timelines:

There are two timelines that an individual completing a 1031 property exchange or (TIC) should abide by and know.

The Identification Period: This is the crucial period during which the party selling a property must identify other replacement properties that he proposes or wishes to buy. It is not uncommon to select more than one property. This period is scheduled as exactly 45 days from the day of selling the relinquished property. This 45 days timeline must be followed under any and all circumstances and is not extendable in any way, even if the 45^th day falls on a Saturday, Sunday or legal US holiday.

The Exchange Period: This is the period within which a person who has sold the relinquished property must receive the replacement property. It is referred to as the Exchange Period under 1031 exchange (IRS) rule. This period ends at exactly 180 days after the date on which the person transfers the property relinquished or the due date for the person’s tax return for the taxable year in which the transfer of the relinquished property has occurred, whichever situation is earlier. Now according to the 1031 exchange (IRS) rule, the 180 day timeline has to be adhered to under all circumstances and is not extendable in any situation, even if the 180^th day falls on a Saturday, Sunday or legal US holiday.

Tenants in Common 101

Simply, a tenant in common (TIC) is a property owned by two or more persons at the same time. The TIC investors have an undivided interests in the property or designated interests of differing sizes.

As TICs you share the tax benefits, income and appreciation of the property on pro rata basis, but that is depending on your particular share of the property.

Purchasing investment properties as TIC allows you to invest in a much larger, institutional grade properties like warehouses, shopping centers, industrial property, etc… that cost a few million dollars or more.

Tenants in Common give you the opportunity to diversify your real estate investment as it allows you to invest in much larger properties, along with the smaller properties in which anybody would invest. This would be highly effective in increasing the value and security of your real estate investments. This in turn can help you diversify across different types and sizes of real estate investments as well as geographic markets.

Ownership as Tenants in Common gives you the chance to increase your potential cash flow, and also provide you with tax write-offs and property appreciation benefits. This is accomplished without the time commitment of active property management that would otherwise be required, if you were the sole owner of the property. Like any real estate investment it can potentially give you appreciation, all without the time commitments of active property management.

Some of the biggest real estate companies (in the USA) source investment properties and garner a fixed rate, non-recourse financing with institutional terms for TIC owners.

With a TIC property investment, you can also gain access to carefully selected, national real estate companies, who seek the investment properties for you.

As a real estate company, the lender and the security company conducts extensive due diligence on the investment properties offered to Tenants in Common. The time and resources necessary are usually provided in a scale far greater than most individual investors are capable of.

TIC investment properties employ a professional property and asset management team, allowing TIC investors to enjoy the benefits of real estate ownership, without the day-to-day property management headaches.

Real Estate Outlook: Housing Bill Approved, By Kenneth R. Harney

With home sales and prices down and unsold inventory up in many areas, the real estate market could use a jolt of good news -- and Congress just provided it.

The massive, 690-page housing bill just approved on Capitol Hill has plenty of mortgage-related provisions in it, but it also has an important stimulus program designed to jump-start housing sales: It's a tax credit, effective immediately, that could cut up to $7,500 off the federal tax return of anyone who buys a house before the end of next June, when it expires.

Buyers have to be first-time purchasers, or renters who haven't owned a house anytime in the past three years. The "credit" is actually more like an interest free loan, repayable over 15 years. Single taxpayers can only qualify for a $3,750 maximum credit. But it still puts thousands of after-tax dollars of incentives into home purchases -- money that wasn't there before.

Starting this week, hundreds of thousands of potential buyers who've been on the sidelines can purchase a new or resale house and qualify for the credit. The National Association of Realtors estimates that up to two million sales could be stimulated by the credit in the coming 11 months, and the National Association of Home Builders anticipates a "multiplier effect" in the move-up segment of the market.

That's because people who sell houses to buyers using the credit will then often need to go out and find replacement homes for themselves -- effectively rippling the impact of the credit upstream, triggering even more sales.

Since there's no Congressional limit on how many buyers can take advantage of the new incentive, it could prove to be huge. It all depends on whether Realtors, builders and individual sellers educate potential buyers about how to factor the credit into affording a new home.

In other economic news this week, mortgage rates jumped to their highest level in nearly a year, 6.6 percent for 30-year fixed rate conventional loans, according to the Mortgage Bankers Association of America.

On the plus side, the University of Michigan's Consumer Sentiment survey -- a key economic barometer affecting consumers' willingness to spend - rose a surprising five points last month.

And still another surprise: The national home ownership rate -- defying all gloom and doom predictions -- jumped to 68.1 percent in the latest quarter, up from 67.8 percent.

Real Estate Outlook: No Recession In Sight, by Kenneth R. Harney

If you want an independent, authoritative guide to where the economy is heading, check out the composite quarterly forecast of the members of the National Association of Business Economics.

The economists polled in the survey work for companies in every manufacturing and business category, so their composite forecasts aren't biased toward one industry or another.

The latest survey refutes the gloom and doom predictions of some Wall Street analysts that we're heading for recession or are on the brink of a financial meltdown.

Fully 44 percent of top business economists now forecast a slow but steady economic expansion -- at a rate of one percent or higher -- for the next two quarters. Another 45 percent look for positive growth, but at a rate below one percent. Just ten percent expect negative Gross Domestic Product (GDP) growth during the period -- the technical definition of a recession.

So 90 percent of the top business economists agree: We're NOT headed for recession.

That's encouraging for anyone looking to buy, sell or broker real estate in the coming months because negative national economic growth would put a damper on any housing recovery. If the economists' crystal ball is accurate - that's just not going to happen.

In other economic news, mortgage rates dropped again last week -- to an average 6.26 percent for 30-year fixed-rate loans, down from 6.4 percent the prior week and 6.7 percent a year ago, according to Freddie Mac. Fifteen year rates dropped to an average 5.71 percent from 5.9 percent.

New housing starts took a big, splashy jump -- up by 9.1 percent last month, according to the US Census bureau -- but it was probably a statistical fluke caused by a deadline for building code changes in the New York area. Apparently builders and developers rushed to start construction to beat the deadline, pushing up the total number of starts in the process.

Scattered reports of price rebounds in previously negative areas continue to come in: Most notably this week, the District of Columbia, which had seen price declines following the peak of the boom, saw June median condominium prices increase by 3.6 percent, and single family detached house prices by 2.1 percent over previous year levels, according to regional MLS data.

As we've said before here at Realty Times: The real estate recovery will manifest itself gradually -- market by market, rather than through national statistics. You just need to have your eyes open for the improvements, modest as they may be in the early stages.

Mortgage Rate Locks Become Crucial, by Broderick Perkins

But it becomes a better idea when it's crucial to lock in an interest rate and other loan costs at a level you can afford.

A changing market -- especially when the change is for the worst -- is one of those crucial times.

During the first half of 2008, nearly a full percentage point separated the high of 6.45 percent in recent weeks and the low of 5.48 percent in January, according to Freddie Mac.

A traditional rate lock is a lender's guarantee that your mortgage will come with a specific interest rate, points, other costs and terms.

Most locks are designed to protect home buyers from rising rates, but those refinancing can also benefit.

A rate lock's terms include a specified period for the lock. If you fail to complete your home purchase or refinance before the clock runs out, and interest rates rise, brace yourself for higher costs.

Those higher costs could come in the form of more up front cash to keep monthly payments in line with what you can afford or what you lender will allow.

With a refinance, if your home ownership isn't at stake, you have more wiggle room and can wait out the market, take less cash out or otherwise cope.

Of course, those refinancing to stave off foreclosure could also find higher rates, without a rate lock, to be just as problematic as for home owners.

In an up-and-down interest rate market, falling interest rates are another strong reason for a rate lock.

If interest rates fall during the lock period you can't take advantage of the lower rate unless you rewrite the lock at additional cost or include a "float down" provision in the original lock.

The "float down" option grants you a lower rate if rates fall within a given window of time. Again, unless specified otherwise, float downs stick you with the higher rate if rates rise during the lock period.

All these rate lock variations underscore the importance of being sure the language of the lock contract gives you the options you need, for a sufficient term.

The contract should lock should lock in the interest rate, points and other costs, where possible. The agreement should include your name; the lock's effective date; lock cost; what terms are locked; the lock's expiration date and time; and any post-lock options.

Lock as soon as you see the desired rate or "on application" -- when you first apply for the mortgage -- so that your rate is locked as you spend time getting the application approved. That's particularly important if you barely qualify at today's rates, and an increase would make buying unaffordable.

Of course, you can choose to set the lock on approval, especially in markets where loan applications are prolonged due to heavy demand for housing.

In any event, the lock period should be long enough to allow for settlement, contingencies, and other potential delays. Locks average 30 days, but can range from 15 to 60 days.

Fed Myths That Need Debunking

There are two things you may have heard about the Federal Reserve Board, both of which are wrong.

The second is that the Fed has made so many commitments that it's in danger of running out of cash or Treasury securities. Which would mean it couldn't carry out its declared policy of putting cash into the world financial system, or its undeclared policy of keeping afloat institutions that it deems worthy. Let me show you why both of these beliefs are myths, not reality.

Let's do interest rates first. It's the more common myth, created partly by sloppiness among people in my business who write (and say) things like, "The Fed cut interest rates today."

In fact, we should always insert "short-term" before "interest rates." That's because the Fed controls only some short-term rates, primarily the so-called federal funds rate that financial institutions charge each other for overnight loans. The financial markets set long-term rates, which often don't move in the same direction as the federal funds rate.

The case in point: the relationship -- or lack of one -- between the federal funds rate and the interest rate on long-term mortgages.

Since September, the Fed has reduced the federal funds rate by 62 percent -- to 2 percent from 5.25 percent. But long-term mortgage rates are higher now than they were on Sept. 18, when the Fed began its rate cuts.

The rate on a 30-year, fixed-rate conforming mortgage -- "conforming" means that the mortgage can be sold to mortgage guarantors Fannie Mae or Freddie Mac -- was 6.44 percent the week before the Fed's first cut and was recently 6.51 percent. Jumbo mortgages -- those too big to be considered conforming -- were going for 7.63 percent, up from 7.26 percent. (All of these numbers include upfront points that borrowers pay, in addition to their basic interest rate.)

The Fed and Treasury and many of the world's big financial players would love to have U.S. mortgage rates decline because that would lend support to home prices, which could use it.

Falling home values -- what we have in most U.S. housing markets -- increase foreclosures, which increase borrowers' pain and lenders' losses. The declining value of houses as collateral for mortgages makes lenders less eager to lend and potential home purchasers far less eager to buy. It's a vicious cycle that will end sooner or later -- everything does -- but it's not something that the Fed (or any individual regulator or player) can control.

The Fed cut short-term rates to help mitigate the panic that has been sweeping world financial markets for more than a year. In addition, those lower rates -- in theory, at least -- help prop up the U.S. economy.

But you can argue that the Fed's lowering of short-term rates has raised inflation fears and contributed to the dollar's decline in international markets, which in turn has affected commodities prices, whose massive increases are a major factor in U.S. inflation. So repeat after me: The Fed can set only short-term rates.

Which may contribute to having long-term rates act in ways that the Fed didn't intend and doesn't particularly like.

Now, to the question of whether the Fed can carry out its commitments, spoken and unspoken. Some say the Fed may run out of money as a result of the huge, high-dollar programs that it and the Treasury have launched -- or could end up launching -- to keep markets afloat.

The worry is that the Fed owns only about $800 billion in Treasury securities and that lending to investment banks, adding to the liquidity of world markets, and possibly helping arrange huge loans to Fannie Mae and Freddie Mac would consume more than $800 billion.

But that overlooks the Fed's amazing power to create as much money as it needs -- out of nothing, as it were.

Here's how it works. If an institution borrows, say, $50 billion from the Fed, the Fed can just post a $50 billion credit to that bank's account at the Fed, and the borrower can spend the balance on whatever it wants. It is indeed as if the Fed created cash out of nothing.

And if the Fed somehow needed more than its $800 billion of Treasury securities, it could buy them in the open market and deposit their payment in the seller's Fed account. That way, the Fed could lay its hands on however many Treasury securities it needed.

Yes, I'll grant that this sounds odd -- but if you ask a Fednik how this all works, he or she would tell you what I've just told you. Except it would be dressed up in fancier language, with all sorts of explanations of how the Fed can do all this and still carry out its monetary policy.

Why am I bothering you with this stuff in midsummer, a time when I'd rather be off drinking something cold than trying to deal with the Fed?

Because myths get in the way of understanding. And if there were ever a time when understanding the Fed's powers -- and limitations -- matters, that time is now.

New Homes: Give Them Gas Cards and They Will Come, by Dena Kouremetis

How hard is it to get prospective new homebuyers to drive out to the hinterlands to walk through, let alone purchase a new home? Just to get them to hit the highway, homebuilders across the nation are going to great lengths.

According to a recent report by BUILDERonline.com, Kimball Hill Homes is giving away a $50 gas card just to entice people to take a stroll through their model homes, Maryland-based Ryan Builders gives non-contingent buyers a choice of covering closing costs or receiving a $5,000 gas card, and Parkside Custom Homes will give you $100 in gas per week for 100 consecutive weeks just for buying one of its two spec-built homes at Eagle Mountain Lake in Dallas.

Other builders around the country are asking people to register to win gas cards for their visit to new home communities. Iincentives like this lure people to a building site they may otherwise not visit, according these builders' executive marketing teams. Some builders even extend rewards to real estate agents for accompanying their clients to a subdivision, where salespeople use them as a "thank you" gift just for visiting.

BUILDER also reports homebuilding giant Beazer Homes held an internal sales contest by offering the year-long use of a branded Smart Car to the division with the highest sales percent to goal. The winner? Their Charleston division, selling 75 homes and exceeding their sales goal by 50 percent. The car is covered with logos announcing Beazer's newly-launched eco-friendly initiative, eSmart.

How to Buy a Foreclosed Home

For anyone wanting to take advantage of today's buyer's market, distressed properties offer the best chance to make a killing. But you need good credit or ready access to cash, and a taste for the hunt.

As I've mentioned in previous columns, searching for a foreclosure can be maddeningly frustrating. Newspaper notices of foreclosure sales are disorganized; foreclosure-listing Web sites charge hefty monthly fees; lenders post only minimal information on the properties they've taken back. And many real estate agents have little experience with these sorts of transactions, and don't want to be bothered with them.

That means foreclosure buyers must be willing to do more sleuthing on their own to find the best deals. Here are some tips to get started:

• Focus on one neighborhood: Although distressed properties are found everywhere these days, not every one is a good deal, especially if the seller bought at the top of the market or if the entire neighborhood is undergoing a decline. It's best to concentrate on places where there are relatively few distressed properties and good job growth. These areas will revive quickly once housing returns to normal. Once you've targeted and studied property values in a particular neighborhood, drive around and look for properties that aren't as well-kept as the ones around it -- then start ringing doorbells. You may be able to buy directly from an owner who's in financial trouble even before the loan defaults.

• Research the property: Although major real-estate Web sites and portals for both agent-listed and for-sale-by-owner properties list foreclosures these days, most provide minimal information and refer you to a subscription-based foreclosure listing site. Some lenders also list the properties they've taken back, though information on these properties is also sparse. (Here's a good link to these lender sites)

• Once you've targeted a property, check out the local assessor's office: Web sites for these offices often list the owner of the property, tax information, assessed value, square footage and aerial pictures. Most importantly, they reveal what the seller paid for the home, which could be more or less than the property is worth now. The best deals generally come from sellers who have owned their homes for a long time and have built up some equity.

• Find an experienced broker: While it makes sense to gather as much information yourself as you can, and to deal directly with sellers whenever you can, some lenders refuse to deal directly with buyers. If that's the case with the property you've targeted, find an agent with ample recent experience with distressed and foreclosed properties. Ask the agent to explain the details of the deals: How much was offered compared to the asking price, how long it took for the seller or lender to accept the offer, and any concessions the agent was able to negotiate. Pay attention not just to the answers, but to the emotions the agent expresses. Foreclosure deals are often complex and time-consuming; you don't want an agent who lacks diplomacy, patience and perseverance.

Myrtle Beach & Grand Strand - Future Growth Predicted, by Bonnie Coast

Federal Approval Granted for Interstate 73 South Project Route

The Myrtle Beach area of South Carolina has reason to rejoice. The recent Federal approval of the I-73 road project, which will run between Detroit, Michigan and the Myrtle Beach/Grand Strand will improve coastal access and support economic growth by linking the Myrtle Beach area to I-95.

Tourist and permanent residents of the Myrtle Beach area are increasing each year. Yearly, more than 80 percent of the area's 14 million tourists use South Carolina's road system. For those tourists traveling from points north will be relieved to cut traveling time. Local residents will be happy to have easy access to Interstate 95 which currently takes an hour and a half of travel over congested roads.

South Carolina's segment of Interstate 73 (I-73) is expected to support economic development and to improve hurricane evacuation by allowing reversing southbound lanes to relieve congestion and increase better traffic mobilization during an emergency evacuation.

Like other metropolitan areas, Myrtle Beach must have major roads, highways and infrastructure in order to see significant growth. With the approval of the last leg of
I-73 the Grand Strand will be closer to reaching planning and growth goals.

With I-73 will come what businesses need with easy accessibility for shipping, convenient travel that will draw large groups and organizations and a quicker more direct route for in state and out of state travelers whether business or recreational.

All this will make Myrtle Beach even more appealing as a world class resort and put in place the pieces needed for non tourist business interest that will enhance local employment opportunities.

The Housing Crisis Is Over!

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1890s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high-but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000-or seven months of supply-by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage the most important factor in deciding, what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-backs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to sub trend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Panel clears bill to freeze property tax

A key House committee on Wednesday approved a bill that could cost Horry County governments $31 million by allowing newly purchased property to keep its existing value for taxes rather than be listed at its new value.

The House Ways and Means Committee also approved a bill sponsored by Horry County's House members that would let public schools and colleges join on a 15-year capital projects referendum that would add a penny of sales tax for specific items if voters approve.

The assessment bill apparently hurts only Horry County, probably because of continued growth and real estate sales, said Rep. Bill Cotty, R-Columbia, who sponsored the proposal.

"This is costing the counties money" because the existing law requires immediate revaluation of property when it is sold, Cotty said.

Deals are falling through, especially for large projects, such as apartment buildings and commercial complexes, and that is bringing economic development to a halt in many areas, Cotty said.

At a subcommittee hearing on the bill two weeks ago, Horry County Councilman Howard Barnard said the latest figures show the change would cost the county $7 million, the school district $21 million and the towns would lose the rest.

The committee approved the bill on a voice vote with no discussion. It could be debated by the full House next week but must get through the Senate and be signed by the governor before it can become law.

The school referendum bill also drew little discussion. Rep. Herb Kirsh, D-Clover, wanted to be sure such a tax would not be imposed on groceries, and it would not.

Rep. Tracy Edge, R-North Myrtle Beach, said Horry Schools officials believe it could be easier to pass the sales tax if some projects at Coastal Carolina University or Horry-Georgetown Technical College are included.

The school officials believe if voters approve, their remaining school taxes for buildings could be cut and replaced with the sales tax.

Such projects on a sales tax ballot could include an arena that Coastal has been interested in building. But Edge said he is not sure voters will agree to tax themselves to assist state colleges or to build an arena that could also be used for private profit.

The bill allows the schools to decide what they will propose to voters for construction and how the money will be apportioned.

Horry voters passed a school-project sales tax bill two years ago, but the courts threw it out because materials distributed at the polls favored a yes vote.

The bill could be up for floor debate next week, but it could be difficult to get it passed by the May 1 deadline to send a bill to Senate, Edge said.

The Senate has the same bill, but it has not been acted on. Sen. Ray Cleary, R-Murrells Inlet, said if the House passes the measure, it has a chance of passing in the Senate.

Real Estate Outlook: Positive Trends

You might assume from the steady drumbeat of bad news about housing and real estate that there's nothing encouraging out there in the economy.

But you'd be wrong. And you might just be missing some positives in the market equation that you could put to work for you.

So amid the gloom and doom, here are a few examples of trends that arer at least slightly hopeful ... and might even helpful:

Number One: New mortgage applications nationwide jumped last week for the first time in more than a month, according o the Mortgage Bankers Association.

New applications for loans to purchase houses -- a very important indicator of home buying in the months ahead -- were up by 1.4 percent on a seasonally-adjusted basis. But they rose by a surprising 14 and a half percent on an unadjusted basis -- that's the raw numbers last week compared with the week before.

Why the sudden increase? Probably because 30-year fixed rates dropped by a third of a percentage point ... down to 5.98 percent from 6.27 percent the week before. Home shoppers have been watching mortgage rates bounce around for the last month -- sometimes getting as high as the mid 6 percent range. So when they saw rates plummet, they put in their loan applications -- and locked.

Number Two: You might smile at this, but the fact is this. The pending home sales index didn't decline last month as many economists had predicted after months of negative numbers. It just stayed flat.

In a market that's been going negative, "flat" looks pretty good -- a sign that maybe -- just maybe -- two years plus of sales declines might be bottoming out, or could do so soon.

Number Three: The Federal Reserve is expected to keep turning the dial down on short-term interest rates -- whatever it takes to kick-start the U.S. economy back into growth mode. Look for another quarter point cut in rates next week -- and maybe more in the weeks ahead.

Now, we're the first to admit that these could be just bright, momentary specks in a real estate economy that otherwise looks pretty dark. But the cost of money is critically important to home buying ... and as long as rates stay low, at some point they intersect with declining home prices and consumers begin to say: "Hey! There are some attractive deals out there."

And they'll be right. And the market will have bottomed out, even though no one saw it coming because the rest of the economic news sounded so bad.

Housing sales creep up as prices slip

Home prices on the Grand Strand were down for the second month in a row, but sales have inched up, according to a February Realtors association report released this week.

The lower prices are what the area needs to jump-start real estate sales, help eat up excess inventory and stabilize the market, analysts said.

Until recently, steady home prices were considered the silver lining for an otherwise lackluster real estate market.

But now the oversupply of homes is forcing sellers to be competitive in their pricing. As a result, condo prices have fallen three of the past four months and single-family house prices have dropped since December.

"People are willing to take more of a cut," said Carolyn Raines-Harbin, a Realtor with Surfside Realty Co. "If you've got someone making an offer, do you really wnat to hold out for another $10,000?"

The median price for a single-family house sold in February was $193,245, down from $198,000 in January. Condos fell from $166,500 to $155,000. That brings single-family house prices down 10 percent from those sold in February 2007 and condo prices down 29 percent. The median price is where half sell for more and half sell for less.

"The market is starting to show decreases in pricing which we weren't necessarily seeing for the overall market," said Tom Maeser, market analyst for the Coastal Carolinas Association of Realtors. "The good news is the sellers are typically getting more realistic. ... All of this has to happen before you start seeing a good recovery."

The declines are evident marketwide - even million-dollar oceanfront condos are going into foreclosure and being sold for less - but the steepest price drops are in highly concentrated condo complexes where more than 10 percent of the units are listed, Maeser said.

"Right now where I'm seeing the most declines is in condos in areas where there are a lot of listings in that project," Maeser said. "Those that have just a whole bunch of condos in it and they were all built during the growth time, they're probably sitting on a lot of inventory right now."

The multiple listing service shows that many Myrtle Beach condos are selling with price cuts: One Myrtle Beach condo at the Patricia Grand recently sold for $138,500, down from the $146,000 asking price. Another on Lake Arrowhead Road sold for $180,000, down from the $189,500 asking price.

Foreclosures also are bringing down prices, although those don't show up in the multiple listing service report unless they're sold through a real estate company.

A Mortgage Bankers Association's report found 1.86 percent of S.C. mortgages in the fourth quarter of 2007 were in foreclosure, up from 1.68 percent in the third quarter and reaching its highest rate in more than two years.

On the Grand Strand and in Brunswick County, N.C., there were 50 foreclosure filings - default notices, auction sales notices and bank repossessions - in January, up from 32 in January 2007 but down from 79 in December 2007, according to Realty Trac.

"I think the foreclosures play a role in the initial phase of the recovery period that we're in because they're distressed sales. They're problems, and the people unfortunately have to sell," Maeser said. "As a result of that, you've got what I call bottom feeders: people that come out and just can't wait to be picking up these distressed sales."

The lower prices and cheap foreclosure properties are luring some buyers back into the market. The number of house and condo sales, though still fewer than this time last year, went up from 327 in January to 444 in February.

"I'm starting to see more investors," said Jeff Casterline, a Realtor with RE/MAX Southern Lifestyles.

"I think buyers are starting to return to the area because there are a lot of properties that have good value right now."

Raines-Harbin said her sales picked up at the start of the year, but she thinks there are many more potential buyers sitting on the sidelines, spooked by the recent economic downturn.

"People are afraidm, and it's not that they're afraid of real estate. I think they're afraid of everything in general right now," Raines-Harbin said. "Everyone feels like they're walking on eggshells."

February's uptick in sales is a good sign,m said Coastal Carolina University research economist Don Schunk. he expects sales to remain fewer than last year, but to stay steady or increase slightly for the first six months of this year.

Prices will be one of the last things to turn around, he said. When they do start to rise, he doesn't expect them to skyrocket as they did during the hot real estate market of 2005 and 2006.

"I think a lot of people in terms of builders, mortgage lenders and borrowers have learned a lot of lessons in the last year, and that's going to lead to a more realistic market over the next few years as opposed to the frenzy we saw a few years ago."

Playing the Housing Slump Time to Make Your Move?

Financial lore says you should buy when there's blood in the street -- which suggests real estate is a bargain, because there's blood all over the neighborhood.

Time to invest? I wouldn't be surprised to see home prices drop sharply this spring, as long-suffering sellers in hard-hit areas throw in the towel and slash their asking price.

That could spell opportunity for this year's buyers. But what if you already own a home -- and have no desire to become a landlord? Here are three ways to play today's battered housing market.

Trading up. If your're hankering after a larger home or a house in a better neighborhood, this could be your chance to trade up on the cheap.

To be sure, when you go to sell your current home, you will likely get a modest price. Since 2006's second quarter, real estate has fallen 10.2%, as measured by the S&P/Case-Shiller U.S. National Home Price Index. But your new, grander house will also be relatively inexpensive, so you're effectively cranking up your real-estate exposure when the market is well below its peak.

That said, I wouldn't think of this move as an investment. Your new home will probably mean not only a bigger mortgage, but also higher ongoing costs, including homeowner's insurance, property taxes and maintenance expenses. These ongoing costs will offset a large chunk of any future home-price appreciation.

In other words, trading up to a larger home or a better neighborhood is really about wanting to consume more real estate. Still, like any thrifty shopper, you want to buy when there's a sale -- and that is what today's market offers.

"It's like going from a Honda to a Mercedes," says Charles Farrell, a financial adviser with Denver's Northstar Investment Advisors. "It's a lifestyle choice. As long as it doesn't cut into your ability to accumulate capital for retirement, this is probably a pretty good time to upgrade."

Doubling down. Instead of trading up, you might be eyeing a vacation home. If you don't plan to rent the place out, the same logic applies: Once you subtract the annual costs from the price appreciation , you likely won't make very much money -- which means the property won't be much of an investment.

On the other hand, maybe you're two or three years from retirement and are toying with buying a second home that could become your sole residence once you quit the work force. Does it make sense to purchase now, given the decline in home prices?

Buying today is no doubt appealing, because it'll give you a chance to vacation in your future home. But whether it turns out to be a wise financial move depends on what happens to property prices -- and that's tough to predict.

Still, I wouldn't bank on a rapid bounce back in home prices. At the current sales pace, it would take a whopping 10.3 months to clear January's backlog of unsold homes. By contrast, in January 2005, the supply of unsold homes was at a mere 3.6 months, according to the National Association of Realtors.

The bottom line: If you think you'll get a lot of use from a second home, go ahead and buy. But if you view the purchase as a bet on rising home prices, I would hold off for now.

Helping hand. While buying more real estate for your own use probably won't be a great investment, you could help your adult children make good money -- by transforming them from renters to homeowners.

To that end, you might give your kids an advance n their eventual inheritance, so they have enough money to make a down payment. Yes, that means they will start to incur the housing costs I mentioned above, including property taxes and maintenance expenses. But your children will also replace their monthly rent check with a monthly mortgage check, and that will allow them to start building home equity.

"If you have kids who are first-time buyers in markets that are relatively depressed, this could be a good time,

A Good Time to Buy a House If You Can Afford One

Finally, it's a buyer's market out there.

For years rapidly rising prices kept many first-time home buyers out of the housing market. But as home values slide further downward and interest rates hover at relatively low levels, it may be time to start looking to buy that first house.

That is, if you have a secure job, can afford higher down payments than were required a few years ago and can meet lenders' much stricter income and credit requirements.

"Lenders aren't cutting everyone off. They're reverting to sanity after years of making bad loans," says Dick Lepre, senior loan officer at Residential Pacific Mortgage, in San Francisco.

The U.S. median home price was $201,000 in January, down 4.6% from January 2007. The S&P/Case-Shiller national home-price index for the fourth quarter was down 8.9% from a year earlier, the biggest drop in its 20 years. Prices have plunged 10% to 12% in troubled markets like Florida and California, and many economists predict an overall slide of 20% or more before the housing market bottoms.

There was a 10-month supply of existing homes for sale in January, up from just under five months during boom times.

If you are about to get into the housing market, this is all good news. But before you begin visiting open houses, recognize that the old home-buying rules no longer apply. You want to approach buying your first house with a financially realistic point of view.

Remember: You're investing in a place to live, not speculating in the stock market or even puttingmoney into a savings account. So keep it simple. Buy smarter. Buy cheaper.

Determine what you can afford. "The days of easy money are over," says Jeff Bogue, a financial planner in Wells, Maine. Mortgage lenders have tightened their standards and are requiring larger down payments. Typically, they want buyers to spend no more than 28% of their gross monthly income on mortgage payments, real-estate taxes and home insurance.

To figure out how much you can afford, use online calculators at realestatejournal.com, dinkytown.com or bankrate.com and "get preapproved or preauthorized for a loan," Mr. Bogue says.

Be sure you also have cash for closing costs like legal fees and title charges. The total typically reaches 2% to 3% of the house price, but differs by state and mortgage product, says Ilona Bray, co-author of "Nolo's Essential Guide to Buying Your First Home." Also be prepared to pay for moving expenses and ongoing maintenance.

Know your market. Gone are the days of "sure thing" home purchases when buyers would bid up prices and then watch the values of their houses soar like tech stocks in 1999. Today, if buyers are bidding at all, they're far more likely to insist on lower prices and to walk away if they don't get what they want.

Now more that ever, location is crucial, down to the neighborhood and street level. Focus on good school districts, crime statistics and any impending construction or public works that could increase or decrease the value of a home. Conduct preliminary research online at Web sites like Zillow.com, Trulia.com and greatschools.net.

"Eighty percent to 90% of housing prices can be explained by what's happening in local economies. Take a hard look at job growth and neighborhood conditions, "says Patrick Newport, and economist at Global Insight in Waltham, Mass.

Make your dollars count. Although conditions vary by market, look for a home that is significantly lower than its 2004 price. (You can ask real-estate agents for information and check estimated historical values at Zillow.) "From the peak to trough, home prices in some markets will drop 35% to 40%, "says Christopher Thornberg, a principal at Beacon Economics, a consulting and research firm in Los Angeles.

Haggle. Don't assume the seller is even in the right ballpark with his asking price. Most real-estate agents and sellers only look at comparable sales prices, or "comps," of similar homes in similar neighborhoods. Take a lesson from property investors and appraisers instead and check out prices from other angles as well.

Consider what it would cost to buy land and build a comparable structure. Insurance companies can provide general cost estimates, but for a thorough assessment consider hiring an appraiser (search online by zip code at AppraisalInstitue.org).

Also compare your estimate monthly costs for the mortgage, taxes and other expenses with the cost of renting a similar place nearby. If you can rent virtually the same house for a much lower cost, the seller is asking too much.

Builders, sellers and banks are eager to unload unoccupied houses, giving the buyer more leverage to ask for lower prices or incentives. And don't overlook REOs ("real estate owned" properties) held by lenders, says Patrick Carey, executive vice president of default and retention operations for Wells Fargo.

Buy for the long haul. "Most first-time home buyers don't buy the house they're goint to end up in," says Ilyce Glink, author of "100 Questions Every First-Time Home Buyer Should Ask." But experts suggest that in a downward market, people should purchase a home only if they intend to live there for seven to 10 years.

"Historically, housing bubbles have taken several years to deflate, but it's hard to tell if we'll see prices drop a lot in the next two or three years or moderate drops over the next 10 years, "says Mr. Newport, the economist.

If you're not planning to stay in the house for long, he notes, "it may be wise to watch from the sidelines."

Remember the Nasdaq, Homebuyers May Balk At Homebuying Even If Conditions Improve

If you missed the lowest mortgage interest rates, you may be wondering what's happening. Why are they going up when the Fed is expected to cut federal funds rate by as much as three-quarters of a point?

The bubble has floated from housing to stocks and burst in both investing arenas. Now there's a bubble in commodities. According to Realty Times mortgage expert David Reed, as long as commodity prices keep going up, mortgage rates won't come down again any time soon.

Economic indicators don't move up or down in a vacuum. And right now commodity prices are rising on the weaker dollar and world demand for corn and other grains to produce ethanol and food. Gold is near $1,000 an ounce hedging against a weaker dollar. Oil is setting new records almost daily, the latest at $106 a barrel.

That's keeping inflation higher than the two percent rate the Federal Reserve is comfortable with.

Reed points out that if inflation were in check, we could have seen mortgage interest rates as low as 5.00 percent, but that train has left the station. Instead mortgage rates are closer to 6.25 percent today.

"Today's Unemployment Report showed that we actually lost 63,000 jobs last month," says Reed, "but instead of mortgage rates falling on the news, the street rate has barely nudged since yesterday."

That's a bad sign that inflation is really taking off.

So here's what's likely to happen. Buyers will be more hesitant about buying homes. Since mortgage interest rates aren't as accommodating, home prices will have to drop further, and in the meanwhile, housing inventory will stack up higher than the 10 months on hand we already have.

There's pent up demand from buyers, but as long as they're on the sidelines, there will also be pent-up demand to sell from sellers, those with homes on the market and those who have been waiting to put their homes on the market.

The Federal government will have to step in to avoid a depression, and the only thing they can do now is sweeten homebuying incentives, like they did in 1987 and 1997. Why will this be necessary?

Today's homebuyer thinks a home is only an investment. The NASDAQ has never recovered to its 2000 highs because people want the big return on their investment. They could likely look at housing the same way - not interested if it only returns two percent a year. Never mind that two percent a year is the historical norm. They want more.

It will take a while, but people will start buying homes again, but only with incentives. And the whole housing crisis will be over because once those incentives are given, they're mighty hard to take away.

Borrowing Yourself Out of Trouble

FOR a mortgage borrower verging on delinquency, a cheaper loan mau be the best way to save a home. But Fannie Mae, which holds major sway in the morgage industry, is offering another alternative: an additional loan.

The company, which bolsters the mortgage market by buying loans from lenders and reselling them in bulk to investors, announced the HomeSaver Advance late last month. This program will enable borrowers to take out an unsecured personal loan to cover missed mortgage payments quickly.

Mike Quinn, a Fannie Mae senior vice president, says the loan is best suited for those who have fallen behind "because of a temporary life event or hardship, like loss of a job or divorce or sickness." Once they emerge from such situations, he said, borrowers may be able to pay their monthly bills but may not be able to catch up easily on the missed mortgage payments. Lenders typically give borrowers two years, at most, to catch up.

Under the HomeSaver Advance program, loan servicers -- companies that provide billing and payment services on a mortgage lender's behalf -- can offer a 15-year loan at a 5 percent interest rate to cover delinquent payments. Borrowers are not required to make a payment on that loan for the first six months.

The maximum loan amount is the lower of $15,000 or 15 percent of the unpaid balance and may be used to cover all mortgage-related bills. These include lawyers' fees and escrow advances, which are payments made by mortgage servicers to cover increases in taxes and insurance that result in shortfalls in a borrower's escrow account.

A borrower never receives the money directly. Rather, it goes to the loan servicer, which also receives $600 from Fannie Mae for initiating the loan. A borrower pays no origination fees.

These loans will be available to borrowers starting next month. To qualify, a borrower must have al oan that was sold to Fannie Mae by the original lender, as is the case with about 23 percent of all mortgages nationwide. A borrower may call or write the customer-service department listed on the monthly mortgage bills to determine if the loan is a Fannie Mae mortgage.

Prospective applicants must be in arrears by an amount that is equal to or greater than two full payments of the mortgage principal, interest, taxes and insurance, and the loan must be at least six months old.

Beyond that, borrowers must demonstrate that they have resolved the reasons behind their delinquency and show they can afford an additional loan payment of at least $200 per month. If borrowers have the ability to repay their mortgage debt within nine months, they cannot qualify for the HomeSaver Advance loan.

Isis Rockwell, a counseling manager at NovaDebt, a financial counseling service in Freehold, N.J., said the Fannie Mae program "sounds like an attractive idea." Still, Ms. Rockwell said, when borrowers manage their finances poorly enough to put themselves in peril once, additional monthly debts may not be a wise option. "It's generally not a good idea to borrow yourself out of debt," she said.

But Mr. Quinn of Fannie Mae said lenders would give the loans only to borrowers who have good chances of shouldering the additional debt. "We've had a very, very high success rate in workouts we've done in the past," he said, using industry shorthand for flexible payment plans offered by lenders to borrowers.

"Well over 60 percent of the borrowers we've done modifications for -- and this is like a modification program, just simpler -- have never come back and been delinquent again," he said.

Press Begins To Suggest It's Time To Buy A Home

Builders are tired of being hammered by the press, but slowly, some writers are beginning to build a case for buying a home.

That's because the mood couldn't be gloomier in housing.

Toll Brothers CEO Robert Toll says that "ceaseless" talk of a recession continues to dampen the "mood of consumer," ... "whether or not a recession actually occurs," keeping pent-up demand for housing "on the sidelines."

His sentiments were accurately expressed in the latest new home sales results. The Commerce Department says new home sales in January fell to the slowest pace since February 1995, and that prices have returned to September 2004 levels, or $216,000 for a median-priced new home.

New home inventories rose to 9.9 months on hand, the most bloated inmore than 26 years.

That mirrors the dismal showing in existing home sales reported by the National Association of Realtors. In January, sales were down 0.4 percent from December, but 23.4 percent below January 2006.

Consumers sentiment is down, the economy is slowing, and many feel we may already be in a recession.

The natural instinct is to roll up the driveway, shutter the windows and wait for the financial storm to blow over, but not everyone is locking themselves in the basement.

Some members of the financial press are beginning to suggest that a bottom is near, and that buyers should get out and start looking for bargains in homes.

Time Magazine ran a piece this week titled, "Ignore the Headlines!" by Dan Kadlec, where he notes that Fed rate cuts always "lift the economy eventually." He also makes the case that buying a home today will beat waiting another year even if home prices drop an additional 10 percent.

To buy a $218,900 home at 5.5 percent is $994.31 a month. To buy next year at $197,010 at 6 percent will cost $994.94.

The irony is that in the time Kadlec did his research and when the magazine came out, interest rates were already back over 6 percent, making his example all the more compelling.

The Motley Fool's Marko Djuranovic wrote on February 25th, 2008 that "the shape of the U.S. housing market is not nearly as bad as some analysts would have you believe." In his spirited defense of home prices as being far from overvalued, he points out that home sizes have increased 47 percent from 1973 (1,525 to 2,248 square feet), and that today's homes feature sturdier construction materials, more expensive siding, outdoor amenities, more complex wiring, sophisticated heating and cooling systems, and larger kitchens.

"And the moment that the supply of existing homes begins to shrink, potential first-time home buyers will wake up to the fact that between low interest rates and homes that sell at (or below) replacement cost, they can grab the deal of a lifetime," says Djuranovic.

As Kadlec points out, you just never know, but you may not save anything to wait, and you've "spent a year living someplace you'd rather not be."

New Shopping Center Planned

Holrob Investments is building a 24,000-square-foot shopping center on the former Myrtle Beach Air Force Base near The Market Common.

The Knoxville, Tenn.-based company is talking to restaurants and shops that might lease space in Conventry Crossing at Withers Preserve, including an Italian restaurant and a spa, said Leslie Baugues with Holrob. She declined to name the stores because leases have not been signed.

Site work began recently on the 5-acre tract, and the center is slated to be finished this summer, she said. About 10 to 12 spots will be available by the time construction is complete.

Though Holrob has built shopping centers in the Southeast, this is its first in South Carolina, Baugues said. The Market Common was a major draw.

"That area is just so exciting. There's just so much going on, "she said. "I think when The Market Common opens in April, you're just going to see a lot of traffic in that area."

The Market Common, set to open April 3, will have restaurants and stores with apartments above them.

Stores, eateries gear up for opening

Shops are shaping up at The Market Common as the reail an dhousing development's April opening inches closer.

Where Air Force personnel once tromped on the former military base, soon shoppers wil peruse new stores.

The first stores open April 3.

People driving down Farrow Parkway might have noticed the Piggly Wiggly and the P.F. Chang's China Bistro are almost finished.

About 40 restaurants and sotes have leased spaces, including well-known chains such as Pottery Barn, Anthropologie and Tommy Bahama as well as local stores such as Xtreme Surf & Skateboard Co. and izzi-b.

The stores will occupy the street-level spaces, with apartments in the floors above them.

Ignore the Headlines

Famed Money Manager is perhaps best known for his timeless wisdom that you can beat the pros by focusing on stocks of companies where you either work or shop or have some other edge. But a more relevant Lynchism today is this gem: Ignore the Headlines.

That's no easy thing. How do you tune out all the chatter and ink on recession, housing, subprime woes, the credit crunch, rogue traders, insolvent bond insurers, $100 oil and nukes in Iran? It's enough to make you sit on your thumbs and wait before making any big moves. But what, exactly, are you waiting for?

There has rarely been a moment in history when you couldn't scare yourself into doing nothing. And yet, as Lynch observed nearly 20 years ago, "in spite of all the great and minor calamities that have occured ... all the thousands of reasons that the world might be coming to an end--owning stocks has continued to be twice as rewarding as owning bonds."

A top reason to not buy stocks, in Lynch's view, is if you don't already own a home--in which case, that should be your first investment, since an owner-occupied home is nearly always profitable. Through a spokesman, Lynch reaffirmed these views to me--housing debacle and all.

When prices are falling, few people have the discipline to buy stocks, a house, gold, art or any other asset. But those who do pull the trigger excel in the long run. As John D. Rockefeller famously said, "The way to make money to to buy when blood is running in the streets."

And the streets are stained crimson. Start with stocks. They have been pummeled this year. GDP braked sharply last quarter, and there has been plenty of panic about recession. The Federal Reserve is slashing short-term interest rates at the fastest clip in decades. But if you stick to your steady, diversified plan while everyone else is retreating, you will be happy years from now. For one thing, Fed rate cuts always lift the economy eventually, and the stock market typically starts responding just as headlines get gloomiest. Sure, the market could fall again before recovering. But the recession may be half over already--or we may avoid one altogether. You just never know.

As for housing, certainly some skepticism is in order. Formerly sizzling markets in Florida, Nevada, Arizona and California probably haven't seen the worst headlines just yet, though they may well be close. And "jumbo" mortgages, those mroe that $417,000, are likely to remain artificially high for a few more months while banks work through their credit issues.

But let's say you are emotionally ready to be a homeowner. You have good credit, plan to stay put for five years and have been waiting for the perfect entry point. It's time to get serious--before an inevitable rise in interest rates wipes out your advantage. "The thing that will make home prices stop falling is the very same thing that will push mortgage rates higher," says Jim Svinth, chief economist at mortgage firm Lending Tree. So anything you gain by a further drop in prices might be offset by rising financing costs.

Consider a typical home that sells for $218,900. You put down 20% and get a 30-year fixed-rate mortgage at today's rate of 5.5%. Monthly principal and interest come to $994.31. Let's say that 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If morgage costs rise a point, to 6.5%, your monthly payment would be $994.94 and you'd have saved nothing. Meanwhile, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you'd rather not be.

It's more complicated if you must sell before you can buy. But that logjam won't persist forever--and if it appears you'll be trapped for a few years, try to refinance at today's lower rates. Risks always seem most acute when the headlines give you ulcers. But that's exactly when you should think long term--and get off your thumbs.

Investors drawn to land near Hard Rock Theme Park

A few developers are looking to buy an $8 million tract south of the park to build hotels or multifamily housing. Other buyers have scooped up homes in the nearby neighborhoods such as Azalea Lakes, Cimerron and Hunters Ridge.

Prices shot up shortly after the park announced its plans but seem to have stabilized as the park nears its planned opening in April, said Coastal Carolina Association of Realtors market analyst Tom Maeser. Listings show homes and land within five miles of the park selling for between $55,000 and $8 million.

One investment group recently put 21 acres just south of the park on the market for $8 million.

Another top-dollar tract nearby sold last year to an Israeli company that invested in the Hard Rock Theme Park, but developers won't say exactly what they will put there.

That parcel, where the Waccamaw Factory Shoppes onced flurished, will be transformed into a $300 million complex called "Paradise City".

Plans for the complex include a hotel, homes, stores and a recreation area, according to the company's web site.

Waccamaw Pottery anchored the shopping center there until it closed in 2004, and many tenants pulled out shortly afterwards. The 52.29 acres went for $20.75 million.

Real Estate listings and blogs are also using the proximity to the park as a selling point.

A Buyer's Market!

As a housing bust reverberates through the nation, falling home sales and rising foreclosures have flooded the market with inventory and made it a buyer's market.

On the Grand Strand, some sellers have slashed prices by $5,000, $10,000 - even $60,000 to get buyers to bite.

Despite the abundance of supply and price cuts at some properties, average prices along the Grand Strand aren't dropping.

Median prices (where half sell for more and half sell for less) for single-family homes rose 5 percent on the Grand Strand in 2007 and condo prices rose 4 percent. That's partially because those figures include people who are closing on homes that they put down payments on during the housing boom when prices were inflated, said Tom Maeser, president of the Fortune Academy of Real Estate.

Unlike some markets such as south Florida, Las Vegas and the central valley of California that have seen sharp price declines, median prices along the Grand Strand have held steady, ending the year at $216,500 for single-family homes and $192,148 for condos.

There are still deals out there, real estate agents are quick to point out. Bargain hunters have a host of options and the time to peruse with little competition from other buyers.

Buyers who are trying to get the best price are wondering when prices will stop falling - and there's no definitive answer.

Tom Maeser predicts the Grand Strand market will rebound in mid-to-late 2008 because the excess of inventory is already starting to disappear.

Between November and January, inventory decreased from 6,227 to 5,880 for single-family houses and from 8,493 to 7,659 for condos.

Market conditions are improving for buyers with better credit scores and the cash for hefty down payments. For them, interest rates on conforming, prime 30-year fixed rate mortgages are lower than they were at this time last year.

Mortgage giant Freddie Mac reported Jan. 3 interest rates on 30-year fixed rate mortgages averaged 6.07 percent that week, down from 6.18 percent the same week last year.

Housing crisis fosters drop in local sales as prices rise

Turmoil in the housing market spurred double-digit drops in sales of houses and condos along the Grand Strand last year, though prices inched up, according to year-end figures released this week.

"You have to remember that the last half of 2005 was the best half a year we've ever had, and the first half of 2006 was the best first six months we've had, " according to Tom Maeser with Fortune Academy for Real Estate. "That makes those two years extremely difficult to compare with this year."

Single-family homes priced less than $150,000 are most in demand with only nine months of inventory. People trying to sell single-family homes that cost $1 million and up could have the longest wait with a 59-month supply.

The year-end report also shows that inventory is up 20 percent for single-family homes to 5,838. For condos, it's down 12 percent to 7,646.

The average number of days homes spent on the market were up 17 days for single-family homes to 164 days. For condos, it was up 46 days to 271.

Basics of a Real Estate 1031 Exchange

Just a few months ago, I began working with Greystone Real Estate Group which specializes in 1031 Exchanges and Tenants In Common. These real estate techniques are fascinating to learn about and safe solutions for people interested in creative alternatives to building wealth. There is not a more secure way to build wealth than through real estate! Right? For those who have not heard about a 1031 Exchange or those who have heard and are not quite sure what it is, let me explain.

A 1031 exchange, also known as a tax deferred exchange, is a strategy for real estate owners to sell one property and acquire another "like-kind" property deferring capital gains taxes. The benefit of this strategy is to defer the taxes, leaving the owner with more money to purchase another property. There are many rules and guidelines that must be followed in order to successfully complete this process. Here are those guidelines simplified:

Sunny Skies for Myrtle Beach Real Estate

There was an article printed in the Sun News written by Tom Maeser, President of the Fortune Academy real estate school, that was about the positive news for the Myrtle Beach real estate market. That is the first time I have seen the industry receive "glass is half full" attention. It should come as no surprise, given that all of the negative issues that have arisen over the past year in a half were really only short term downfalls and it was only to correct and stabilize our market, leading to an even stronger economic driving force. I think the surprise came because it happened sooner than expected.

So what are the positive issues that he highlighted?

1) Insurance rates are being lowered and more insurance companies are coming to South Carolina.

2) Interest rates are low.

3)Subprime lending is coming to an end, bringing back reputable lenders and qualified buyers.

4) There are fewer real estate agents- the ones that are still in the business are taking better care of their clients

5)Seller's are pricing more realistically.

6) The "flippers" have left, leaving investors who are in it for the longterm investment, not ones who will back out of their contracts at the last minute.

7) Builders are realizing that they need to adjust their prices to get rid of the oversupply of inventory instead of giving huge incentives.

8) Sales are today like they were in 2004- that was a good market

Bottom line - we had to experience all of these issues in order to be more competitive and get to a healthier market and now we can see sunny skies ahead!

Is 40 The New 30 In The Life Of A Mortgage?

Forty year mortgages can reduce your monthly mortgage payment, but is that enough to offset the extra cost of tacking 10 more years onto the conventional 30-year mortgage?

The question is probably too simplistic, says Dan Green, a mortgage planning specialist at Mobium Mortgage in Chicago.

He says loan products like the 40-year mortgage are deemed risky because they are viewed in a vacuum, without considering the needs of the individual borrower or without comparing their benefits with other mortgages.

"It's not the loan that is risky, it's the behavior of the person paying the loan," is the advice he offers in his treatise on home loans longer than 30 years.

The draw of a 40-year mortgage is its relatively lower payment -- compared to a 30-year loan -- due to stretching out the amortization schedule over a longer period of time.

That could be attractive to those in high-cost housing areas, those who can't qualify for a 30-year mortgage payment or for those who want to qualify for a larger home. Longer term loans are also beneficial for people who don't plan on moving for a long time.

But here's the rub, not only will you pay more over the life of the loan for a 40-year mortgage, the higher interest rate on a 40-year mortgage bites into some of the expected monthly savings.

According to LendingTree.com the rate on a 40 year mortgage could be 0.25 percent to 0.375 percent higher than the rate on a 30.

So let's do the math on a $250,000 mortgage, at 6 percent for a 30 year mortgage and 6.25 percent for the 40, using Nolo.com's "How much will my fixed rate mortgage payment be?" calculator.

The interest and principal payment on the 30-year loan would be $1,498.88 with a total of $539,593.37 paid over the life of the loan.

For the 40-year mortgage, the payment would be, $1,419.35 with a total of $681,285.85 paid over the life of the loan.

That's less than $100 savings each month in exchange for more than $140,000 in extra cost over the life of the loan.

Also consider the fact that the principal is not paid down on a 40 as fast as it is on a 30, toss in a market with flat or falling home values and homeowners with a 40 year mortgage could really feel a pinch instead of relief.

Or so the theory goes.

"These arguments are all based on a single tenet -- that paying down a principal balance is a good thing. That's not always true," says Green.

Green says the more a homeowner invests in the home, the smaller the return because the cash-in-investment isn't generating the return. It's the home's value that grows -- market permitting.

The 40-year mortgage behaves somewhat like a no- or low-down mortgage in terms of using more leverage and leverage is the tool investors use to play the game, for good reason.

You get the same level of market-based equity growth with a 30-year, 40-year or even 15-year mortgage. With a 40-year mortgage it's just that you get that equity growth at a smaller monthly cost. Greater leverage.

Most people move or refinance within five to seven years and the low monthly payment could work from them in the right market. Given home equity growth historically shows up during a 10 year housing cycle, but not for the entire cycle, timing is important.

The 40-year mortgage can be a good fit if for those at an early stage in their career. It can allow them to buy a home they might not otherwise be able to afford. Later during the next equity-growth cycle they can sell and buy anew sell or refinance with the next appropriate financing tool.

A 40-year mortgage can also be advantageous for high-income earners whose mortgage interest payments may be their only large income tax deduction. And it can be used by vacation rental owners to reduce carrying costs.

Other mortgages can perform the same high-leverage trick, provided you can qualify for them, provided they are a risk-fit for your financial status and planning and provided the market cooperates.

The key, says Green, is running all the numbers, both the cost-comparisons of mortgages along with your financial goals, planned tenure in the home and lifestyle.

"New loan products like the 40-year mortgage are not dangerours to everyone. They are only dangerous to homeowners who operate without a financial plan," says Green.

Senate Passes FHA Modernization Bill

More than 90,000 REALTORS contacted the Senate, urging passage of the FHA Modernization Housing bill that is critical to resorting confidence in the mortgage and housing markets and the nation’s entire economy. On July 11^th, the Senate voted 63 to 5 to approve the legislation.

As a result of your efforts, HR 3221 creates affordable housing opportunities by setting loan limits up to $625,500 for Fannie Mae, Freddie Mac and FHA, and will stimulate housing demand with a temporary $8,000home ownership tax credit. The bill also includes broad reform for Fannie Mae, Freddie Mac, and FHA, and creates a new FHA program to help homeowners at-risk for foreclosure.

By working together we have shown that when REALTORS stand united, the American dream of homeownership is open to all.

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