Worst performing cities:

Despite news that the pending home sales index jumped at the highest rate since 2001, some real estate markets are struggling along.

We’ve recently discussed the best small towns to buy a home and outlined most rapidly growing counties but today we’d like to reveal the areas that are struggling.

The 10 worst performing markets:

Below is the Forbes.com list of 10 worst performing housing markets with Forbes’ explanations as to why they are under-performing.

1. Milwaukee, WI: Some cities’ housing crisis stemmed from rampant overbuilding. Others can blame the decline of the manufacturing industry. Milwaukee has felt both. The worst-selling housing market saw a 47% increase in unsold homes between 2008 and 2009, thanks both to underlying economic problems and overzealous development during the housing bubble.
2. Denver, CO: Denver doesn’t come to mind as a housing-crisis hot spot, but the city that once looked like it would escape the housing bust unscathed now shows signs of strain. More than 42,000 homes are on the market in the metro, 27% more than last year.
3. Los Angeles, CA: Los Angeles has yet to recover from the blows it took when the housing bubble burst. Home sales fell by 5% in the metro between 2008 and 2009, while they rose, if only modestly, in most other large metros. Home sale prices peaked in late 2006, and it looks like the remnants of overbuilding will continue to clog the housing supply.
4. St. Louis, MO: The city has shed jobs and seen housing prices plummet. Inventory in the metro is up 36%, in part as a result of its 11% unemployment rate. Manufacturing jobs no longer drive the city’s economy, and slow sales are just one symptom of its economic maladies.
5. San Francisco, CA: Unemployment has reached 11% here, and home prices fell by 6% between 2008 and 2009. The area’s poor-home-sale performance shows that California’s housing woes spared no city.

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Short sales are occurring with increasing frequency as a result of the poor economy and shrinking home values.  What many people don’t realize is that if your lender allows you to sell your home at a loss, you may be liable for taxes on the losses incurred by the lender.  The IRS considers a short sale loan forgiveness.  Loan forgiveness is considered debt discharge income (DDI), and DDI is taxable.

If a lender forgives more than $600 of principal, they might send you and the IRS a 1099-c form, and you are required to report the loss as income.  In many cases whether you have a tax liability or not will depend upon your lender.  Some lenders will report the DDI to the IRS, others will not.

In addition to DDI, there can be other tax implications to a short sale.  Take for example the case of someone who bought a $100,000 home.  The market did well and the property increased in value to $125,000.  At the peak the borrower taps the home’s equity and took out a second mortgage for $50,000.  Now the borrower has a house worth $125,000 and $150,000 worth of mortgages (first and second).  The market stagnates and they sell the house in a short sale for $125,000.  For tax purposes, they have actually made $25,000, despite being $25,000 shy of breaking even on their mortgages.  This is because the sales price exceeds the tax basis of the home.  Mortgage debts do not factor into gain-on-sale calculations.  This is in addition to the taxes that must be paid on $25,000 worth of DDI.  It is possible that the $25,000 gain may be excluded from taxes as a result of the federal home sale gain exclusion tax break.

Now take the example of a person who purchased a home (to be their primary residence) for $100,000, the market improves and the house appreciates to $125,000.  The homeowner borrows $50,000 against their home equity, and now has $150,000 worth of mortgage debt.  Then the market declines and the house is worth $75,000 and is sold in a short sale.  The borrower is left with $50,000 worth of DDI, but they have also incurred a $25,000 loss on the property.  The borrower may not deduct the loss.  This is because you may only claim losses on investment or business properties, not principal residences.

There are some circumstances where DDI can be exempt from taxes.  If the debt write-off is deemed a gift, discharged in bankruptcy, or you were insolvent (have debts that are in excess of your assets) at the time the lender forgave your debt, your DDI may be exempt from taxes.

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LOS ANGELES- A 7.2 magnitude earthquake centered in Baja California, Mexico was felt all over Southern California, rocking high rise buildings from San Diego to Los Angeles, but there were no immediate reports of major damage.

One man died when his home collapsed on him, Baja California state Civil Protection Director Alfredo Escobedo. The man’s home was very close to the quake’s epicenter, just outside Mexical.

According to Escobedo, there are reports of people trapped in more home collapses in Mexicali and rescue teams from nearby Tijuana are rushing over to the city to aid.

The preliminary magnitude-6.9 quake struck about 6 miles below the earth’s surface at 3:40 p.m. PT, about 110 miles east-southeast of Tijuana, according to the U.S. Geological Survey.

After examining data, seismologists upgraded the size of Sunday’s 25-second quake from a magnitude 6.9 to 7.2, according to Dr. Lucy Jones of Caltech.

“This is the largest earthquake since the [7.3 magnitude] Landers earthquake of 1992,” Jones said, “A 7.2 is going to happen over a pretty long fault, probably close to 50 miles long.” Seismologists are working to determine which of a series of faults the quake occurred on.

According to reports, the temblor’s force caused high-rise buildings in San Diego to sway back and forth around 30 seconds before rocking high-rise buildings in downtown Los Angeles.

Caltech officials report that over 20 million people felt shaking related to the 7.2 magnitude earthquake.

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Out of work for more than a year, Dale Ottley was relieved when she was able to sell her Woodland Hills condominium for $230,000 – even though it was a “short sale” on which she lost $200,000.

Now she faces the possibility of having to pay state income tax on the $200,000 debt that her mortgage holder erased when she sold her condo for less than she’d paid for it.

“That would be monumentally unfair,” said Ottley, who is still looking for an accounting job. “It wasn’t income to me. It just stopped the (financial) hemorrhaging for me.”

Ottley and an estimated 35,000 other former homeowners in California could be hit with big tax bills because they completed a short sale in 2009.

While federal law has exempted forgiven debt from income tax since 2007, the state of California hasn’t yet followed suit.

And Gov. Arnold Schwarzenegger last week vetoed legislation that would have exempted short sellers from paying taxes on debt forgiven in those transactions.

In his veto message, Schwarzenegger said he killed the bill, SB X832, because lawmakers had inserted provisions for tax penalties opposed by businesses – not because of the short-sale issue.

But representatives of legislators at the forefront of the debt forgiveness effort said this week they expect a new bill will be passed and signed before the April 15 tax filing deadline.

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Homebuyer tax credits are almost certainly returning.

Sacramento-area buyers can begin claiming $10,000 tax credits starting May 1 under a bill expected to be signed soon by Gov. Arnold Schwarzenegger.

The legislation allocates $200 million for more state tax credits – twice what was offered last year to 10,659 buyers of new, unoccupied homes. The state’s newest housing stimulus will grant $100 million in tax credits to first-time buyers of existing homes and $100 million to anyone who buys a new, unoccupied home.

The state Franchise Tax Board on Tuesday estimated nearly 32,000 homeowners statewide might get the tax breaks. Buyers must close escrow or reserve a credit on or after May 1 and before or on Dec. 31 to qualify.

The bill, AB 183, passed both houses of the Legislature by near unanimous votes. But one local lawmaker, Assemblyman Roger Niello, R-Fair Oaks, voted against it.

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PHOENIX (AP) — The five states hardest hit by the foreclosure crisis have been given only weeks to plan how to spend $1.5 billion in federal funding announced by the Obama administration last month.

Guidelines issued under the U.S. Treasury Department’s Fund for Hardest Hit Housing Markets on March 5 gave housing finance agencies in California, Arizona, Florida, Nevada and Michigan just six weeks to come up with plans on how to spend their share of the money.

The rush could be problematic for the states, especially because Treasury is seeking “innovative” measures to help families facing foreclosure. But some experts have been urging the administration to try the approach, believing it will be helpful and that it can be done quickly.

“This is long overdue, allowing the use of more innovative techniques,” said Ken Rosen, a real estate professor at University of California at Berkeley’s Hass School of Business.

The guidelines give wide leeway to the state Housing Finance Agencies charged with doling out the money to design programs tailored to their region’s circumstance. The money can be spent, for example, to help families who can’t pay their mortgages because of job losses, unable to refinance because plunging home values have left them “underwater,” or to give relief from second mortgage payments.

California’s Housing Finance Agency, for example, is looking at areas of the state that have been hardest hit, like the Central Valley and Inland Empire area southeast of Los Angeles, spokesman Ken Giebel said. The agency is getting the most cash, $700 million.

It will have to start from scratch with plans on how to help unemployed homeowners, for instance, and how to get the money from the federal government to the state government to the actual underwriter.

“None of this stuff is in writing, it’s all up in the air right now,” Giebel said.

Rosen suggested allowing the value of a home that is worth less than the homeowner owed to be written off, replacing that amount with a second mortgage that wouldn’t have to be paid off unless the home rose enough in value.

The homeowner would then share in the profits, providing an incentive to stay in the home. He also said programs to allow the unemployed to forgo payments for a year, with those payments wrapped into a second mortgage, would be helpful.

“There’s a lot of innovative ideas and I’m hoping we have a lot of smart people in each state who know them; I know we do in California,” Rosen said. “So I think there’s plenty of time.”

Florida is getting the second-largest share at $418 million.

Cecka Rose Green, communications director for the Florida Housing Finance Corporation, said her agency is just starting to review the Treasury requirements, but has put a team together and is reviewing programs other agencies are using. They’re looking at plans that have helped in other states and will likely cherry-pick the best.

“I think we’re taking those important first steps but we’re not close to getting any details of a plan out,” she said Friday.

Michigan is getting $154.5 million, Nevada $103 million and Arizona $125 million.

Arizona’s housing agency is also just getting started on a proposal and hasn’t identified how it might spend the money.

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Los Angeles Times

Yves Didier has been a strong believer in earthquake insurance since the 1994 Northridge quake, when his apartment building was severely damaged and some of his neighbors lost their lives.

He didn’t hesitate to pay as much as $2,500 a year for coverage after he purchased a three-bedroom house in Reseda in 1999. He said he’s never missed a payment and (thankfully) never had to make a claim.

So it came as a shock for Didier, 45, to recently be told by his insurer, GeoVera Insurance Co., that his annual premium would nearly triple to $7,100 and that his deductible would soar to more than $100,000.

“I’ve been hearing all about health insurance rates going up by 39%,” Didier said. “That’s pretty bad. But how do you explain earthquake insurance rates going up by almost 200%? That’s just crazy.”

The earthquakes in Chile and Haiti serve as a powerful reminder — as if one was needed — that Southern Californians should be prepared for the worst. Yet the vast majority of homeowners in the region don’t have quake insurance.

Didier said he had to let his coverage lapse when it came up for renewal in January. For the first time as a homeowner, he’s now without earthquake insurance.

“I really feel that I’ve been stripped of something that I need as a homeowner in Southern California,” he said. “But I can’t afford $7,100 a year.”

Relatively few people can, especially in an economy like this.

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With more than 8 million Toyota cars and trucks (including some Lexus vehicles) under recall for a variety of issues that include brake and accelerator problems, insurance claims are all but certain. But how will those claims, and the volume of them, affect your insurance rates?

Dating back to mid-January, Toyota recalled a variety of vehicles in its lineup for faulty brakes, faulty accelerators, floor mat issues and even driveshaft concerns. An estimated three-dozen deaths in auto accidents have been linked to the faulty problems. And while Toyota has a fix for the problems and has recalled the vehicles, it leaves consumers scratching their heads.

What you can do

If you have a recalled Toyota, first thing’s first: Bring it into a dealership and have it serviced for the recall issue. But beyond that, know that you cannot lose your insurance coverage as a result of the recall. And, in theory, the sheer nature of the recall should not increase your auto insurance premiums, because the recall should curb accidents (and thus, claims).

According to insurance industry watchers and analysts, Toyota is the party with the bigger insurance issue. If insurance companies are dealing with a massive amount of claims related to faulty Toyota and Lexus vehicles, they will turn to Toyota to fix the situation, not their customers. To stay safe, remember to get your car serviced and repaired. If you fail to do this, and you are involved in a recall-related accident, you could be responsible for part of the accident because you ignored the recall issue.

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