Dear Mr. Berko: I think the housing market will recover in the next 12 months. For that reason, I would invest in 100 shares of Hovnanian Enterprises Inc., 100 shares of Lennar Corp. and 100 shares of D. R. Horton Inc. I would buy them because the economist for The National Association of Realtors — I don't recall his name — recently told the public that the housing market is in the process of recovery and prices are in the process of rising. Please give me your thoughts on these issues. And if you have another stock in the housing market that you like better, I would like that recommendation too. H.W. — Bend, Ore.

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 is just as disingenuous as your congressman. The NAR'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.

While 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., Country Wide and Gold West Financial into ruin. What a shame.

How does the confused consumer know who to trust these days? He's lied to by his congressman, his preacher, banker, stockbroker, insurance agent, auto salesman, corporate CEO's, 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. And 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 plus.

2. A 25 percent decline in home prices.

3. A decrease in unemployment rate by 30 percent from 6.5 percent to 4.5 percent.

4. And failing those three, we would need a miracle!

So I think your interest in D. R. Horton Inc. (DHI-$7.30), 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-$4.10) 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-$6.95) 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 Home Depot (HD-$20), 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 in 2008, which is a realistic 13 times earnings. The Street also believes that HD can earn $1.95 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-corp and momentum. Store employees now smile and seem to enjoy their jobs.

So forget those homebuilders. 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, FL 33429 or e-mail him at malber@comcast.net. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

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