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Dear Mr. Berko:

Dear L.S.:

The humbuggers, rogues and con artists are swarming like dung beetles as the housing market hits the fan. The prime directive of most of these newly minted housing partnerships is to make as much money as possible for the general partners, or organizers, via real estate commissions, title insurance, mortgage fees and maintenance charges plus myriad debatable costs that will squeeze you drier than a sun-baked tomato. When there’s no juice left, the general partners will, as planned, legally “limbo” your partnership, skate away and leave the limited partners holding bupkis.

My first inkling of suspicion derives from a section in your prospectus titled “Use of Proceeds,” in which your two general partners are proposed to receive salaries of $250,000 and $300,000 a year plus expenses. Now that’s a lot of salary for these two picaroons, and “expenses” is so open-ended that it can include a Bentley convertible, tickets to the Super Bowl and safaris to the Sahara.

And I’m willing to wager a pound of my weapons-grade plutonium stash to a cache of pesos that the housing market won’t recover this year or next.

Federal Reserve Chairman Ben Bernanke inherited a purulent mess from his predecessor, the publicity-coveting Alan Greenspan. Bernanke knows he must raise interest rates to keep the economic needle out of the red zone. And when he does, the much-vaunted housing recovery will stop as abruptly as a rabbit’s tail.

Across the nation, home and condominium values have fallen to early-2005 levels. But there’s still a lot of groaning and pain remaining as prices fall to the 1999-2000 levels at which the average family might be able to afford a home.

Household income and net worth are falling like tears from a tall camel’s eye, and mortgage defaults are soaring at record rates with no signs of abatement. Delinquency rates are over 4 percent and headed higher, the number of existing homes for sale increased to 11.1 percent this year, new home sales are down 12.5 percent from 2007 and the supply of new homes is at a record high. So even if demand stabilizes today, the mountains of unsold new and old homes will continue to exert downward pressure on prices. Prices have dropped 17 percent since the 2006 market peak, and some observers believe they can fall another 17 percent in the next 18 months.

Lower home prices and lower mortgage rates have made housing more affordable, but buyers don’t have the disposable income to pay principal, interest, taxes, insurance and utilities, and banks have tightened their lending standards.

As I noted in a February 2007 column, when folks stop buying homes, they are actually un-employing people in the carpet, window, lighting, plumbing, flooring, furniture, electronics and banking industries. Consequently, unemployment continues to rise, personal debt is zooming, retail sales are slowing, consumer savings are in negative territory and household wealth has declined 12.5 percent in the last 12 months. So it’s going to be a slow trip back to economic and housing health.

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