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Dear Mr. Berko:

Dear H.W.:

Never ask a barber if you need a haircut, a mechanic if your car needs a tune-up or a Realtor if he thinks home prices will move higher.

Unfortunately, the National Association of Realtors (NAR) is just as disingenuous as your congressman. The group’s chief economist, Lawrence “Crazy Larry” Yun, has been telling NAR salespeople and the public that real estate prices have bottomed and should begin rising again in the very near future. Well, the NAR signs Crazy Larry’s paycheck, and this is a tough time to be looking for a new job.

Though I won’t place all the onus on Crazy Larry, I am sorely disappointed that the NAR would act in such bad faith, knowingly and intentionally misleading the public for corporate gain. The NAR, with 1.3 million members, seems to be influenced by the same greed that pushed Washington Mutual, Fannie Mae, Lehman Bros., Countrywide and Golden West Financial into ruin. What a shame.

How does the confused consumer know whom to trust these days? He’s lied to by his congressman, preacher, banker, stockbroker, insurance agent, auto salesman, corporate CEOs, the president of the United States and hundreds of product advertisers. What a bloody shame.

Foreclosures have left nearly 5 million houses on the market. That could get much worse before it gets better, because rising unemployment translates to fewer potential buyers. So most economists are predicting another 15 percent to 25 percent drop in home prices nationally over the next 12 months.

I don’t buy the common tommyrot that mortgage loans are not available. Loans are available if you have good credit, a 10 percent down payment and a secure job. And every bank has a right to demand those criteria if they want to make a secure loan.

However, prices will continue to decline until they reach a point at which the average wage earner can afford to make payment of principal, interest, taxes, insurance and maintenance. American families with a national medium income of $47,000 a year, or $3,500 a month after taxes, are priced out of the housing market. Few families can afford the average $1,700 monthly payments on a $203,000 home loan after the required $22,000 downstroke.

Because home prices have risen exponentially faster than income, there are four criteria necessary if the housing market is to recover in the next 12 months:

1. A 25 percent increase in the median income.

2. A 25 percent decline in home prices.

3. A decrease in the unemployment rate by 30 percent, moving it from 6.5 percent to 4.5 percent.

4. Failing those three, we would need a miracle!

So I think your interest in D.R. Horton Inc. (DHI-$7.06), which owns 170,000 lots, a six-year supply, is terribly premature. If home and land prices continue to deteriorate, DHI’s losses could force the company to liquidate assets significantly below costs and implode its balance sheet.

Hovnanian Enterprises Inc. (HOV-$2.40) is a highly leveraged company with debt and preferred stock representing 81 percent of capital. HOV will soon have a negative book value and has suspended the interest on its preferred stock. Stay far away.

Lennar Corp. (LEN-$6.48) continues to watch its fundamentals erode. The company’s exposure to joint ventures with other builders has created some off-balance-sheet liabilities that are too difficult to measure. This issue makes my tongue itch.

However, I’d be a buyer of The Home Depot Inc. (HD-$22.78), the $72 billion revenue chain of home improvement warehouse stores. HD, after falling from $44 in 2006 to $17 this year, might be in an enviable position to profit from the massive “spruce-up” of the nearly 5 million homes under foreclosure.

Wall Street reckons HD will earn $1.76 per share in 2008, which puts its share price at a realistic 13 times earnings. The Street also believes that HD can earn $1.95 per share in 2009. And because the Home Depot board of directors got rid of CEO Robert “Nasty” Nardelli and his dedicated sycophants, HD seems to have regained most of its past esprit de corps and momentum. Store employees now smile and seem to enjoy their jobs.

So forget those home builders. I think a year from now you’ll be happy as a monk in mud if you buy Home Depot.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © 2008 Creators Syndicate Inc.