Dear Mr. Berko:

In May 2005, we bought a condominium in St. Pete Beach, Fla., for $885,000. Five months ago, my wife and I lost our jobs in the travel industry. We immediately put our condo on the market and have lowered the price twice, finally to what we paid for it. Our mortgage is an $878,000 adjustable rate at 4.75 percent. Last week, we got an offer of $795,000, which is the only offer we’ve had.

Now we are frightened that we may have to keep making mortgage and interest payments until the market gets stronger. Taking an $83,000 loss would wipe out all our savings, our two Individual Retirement Accounts and we’d still be about $18,000 short. We’ve read that the experts believe housing prices will increase this year between 3 percent and 7 percent. Do you think that when interest rates fall the condominium market will get stronger?

D.S., Delray Beach, Fla.

Dear D.S.:

You folks are in big trouble, and so are tens of thousands of others who bought homes with zero money down using an adjustable-rate mortgage. The banks may be in deep doo-doo, too, because in almost every instance the amount of the mortgage exceeds the market value of the home. In many of those instances, they may be forced to swallow the differences.

I’m quite familiar with that section of Florida, and I know that the number of resale listings has increased fourfold in the past five months. Your unit is competing against a surging glut of thousands of resales as well as a record number of unsold new units sitting empty and a soaring number of unsold “new builds” that will soon triple the already swollen unsold inventories.

Now I know my advice is going to be hard to swallow, but you’ve got to consider the circumstances and take your loss.

The housing boom — no matter what the experts, real estate agents or builders tell us — is going bust. I learned years ago never to ask a barber if you need a haircut or a banker if you need a certificate of deposit. And never ask a real estate agent if he thinks it’s a good time to buy property. Of course housing experts (who are these experts?) are predicting a 3 percent to 7 percent increase in property values this year. But these well-paid idiots completely ignore the fact that there wasn’t a sane reason for the astronomical rise in housing costs during the past five years, when Middle America’s wealth imploded in the bear market.

During the past five years, wages haven’t moved off the dime as inflation averaged a modest 2.5 percent to 3.5 percent depending on which government agency you visit. But housing prices exploded, making real estate look like the tech and dot-com sector did when Lucent was trading at $80, Juniper Networks was $240 and Ciena was $150. It kind of makes one wonder if the home price explosion was covertly contrived just like the prices of many tech and dot-com issues by experts from the major brokerage firms.

Common sense suggests that as of last January the prices of most homes and condos were 40 percent to 50 percent too high. Even if we experience a strong growth in the wage base, a surge in gross domestic product and inflation at 5 percent, I believe the average home value can fall 25 percent to 30 percent in the next three years. Last year, 45 percent of new-home buyers, like you, bought without a down payment, and 35 percent of all new mortgages were interest only.

Making matters even more precarious, more than $3 trillion in mortgages will adjust during the next 12 months. Consider a typical $250,000 ARM with a 2 percent cap rate-hike and a current $1,100 monthly payment. The monthly payment climbs to $1,424 after the first increase and then to $1,750 after the second increase. That’s $650 a month, or $7,800 a year. Plug in soaring insurance costs and higher state taxes, and the annual nut just increased by almost $10,000. I’d like to know how a middle-class family taking home $40,000 after taxes can afford an extra $10,000 and still fill their gas tanks.

Sell that unit before the buyer rescinds his offer.

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

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