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Dear Mr. Berko:

Dear W.S.:

Forget “green shoots.” That’s a silly Madison Avenue metaphor to generate public confidence in the market again. If you think The Ryland Group Inc. (RYL-$15.15) and Lennar Corp. (LEN-$8.06) are “flaming buys,” you might have a serious cerebral short circuit preventing your nerve impulses from making the proper synaptic connections.

The current inventory of unsold homes stands at a 9.3-month supply, and prices are still falling, although more slowly. That 9.3 number is the lowest it has been in quite a while, and this declining number is called a “green shoot.” But few analysts are giving proper weight to the current bank inventory and imminent foreclosures that are not yet on the market. If those homes were included, the national unsold inventory rises to a 13.1-month supply.

Frankly, I can’t fathom how Mr. Joe or Ms. Nancy can afford to purchase a new, median-priced, three-bedroom home for $190,000 in Tampa, Fla., or Aurora, Colo. A mortgage with a 5 percent interest rate would require monthly payments of almost $1,800 for principal, interest, taxes, insurance, maintenance, etc.

But holy cow and ducks won’t float, you also have to include $75 a month for maintenance and $200 a month for utilities. So, if you bought a home for $190,000, it’s going to cost you a jot over $21,000 a year to live in it. And if you’re making $45,000 a year, you only have $24,000 left after making those house payments.

There’s still Social Security and federal tax obligations of $5,500 plus health insurance costs of $5,500 a year to be taken from your paychecks. You are also on the hook for annual auto payments of $4,000 plus annual MasterCard and Visa payments of $4,000. So, you are spending another $19,000 a year, leaving you with $5,000 a year, or $417 a month, for new carpets, couches, tables, patio furniture, an entertainment center, new plumbing fixtures, drapes, lamps, tile and wallpaper. And that doesn’t leave much to spend on gas, food, clothing or an occasional family dinner at Chili’s.

Most homes are still too expensive by half. Municipalities must find a way to reduce taxes. Health, home and auto insurers must find a way to reduce premiums. Without significant reductions in those costs, most Americans might never, ever be able to own a home again.

After all this taxing and taking, those in the middle class might not have enough to support themselves. This suggests that homebuilding stocks are sucker bets. Frankly, I can’t imagine how the big home builders can duplicate past earnings, because a recovery is years away.

The real estate industry was hammered by a hurricane. Today it seems to have stopped reeling and is in “the eye” of the hurricane, where it’s calm and peaceful. But in six months or so, the eye will pass over the industry, and it could begin to enter the back of the hurricane for the throes of a final shakeout. It could be a rough ride in 2010-11.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service