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Wednesday, October 11, 2006 1:56 PM

Whole Lotta Hopin' Goin' On

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Once again I am in a musical mood.
It's time for a remake of a classic Jerry Lee Lewis song.

I said come on over baby
A-whole lotta hopin' goin' on
Yeah I said come on over baby
A-whole lotta hopin' goin' on
Well we ain't fakin'
A-whole lotta hopin' goin' on

Before I even had the chance to open the Mish Telepathic Thought Lines (MTTLs) I was flooded with questions wondering "What brought that on?" Enquiring minds deserve answers, however, and this one is called is called 1-877-601-HOPE (4673). Please use your regular phone lines to dial HOPE because the MTTLs are currently incoming only.

Default Servicing News is reporting Colorado Foreclosure Hotline Launches .

It's official. Colorado's new statewide foreclosure prevention hotline is open for business.

The hotline -- 1-877-601-HOPE (4673) -- was launched Tuesday morning. At least 65 housing counselors across Colorado are now taking calls, organizers say, along with some help from call centers based in other states. The aim of the hotline is to connect troubled Colorado borrowers with housing counselors in their area, so callers are instructed to enter their zip code and are then directed to the counselor nearest to their city.

Chase and Freddie Mac are helping fund the loss mitigation efforts in Colorado, but foreclosure prevention task force organizers are still looking for additional ways the non-profit loss mitigation groups can partner with lenders to bolster foreclosure prevention efforts even more.
Greenspan is very hopeful.
I offer as proof the Financial Times article Housing boom due to global integration says Greenspan.
The great boom in US house prices that abruptly petered out in recent months was caused by increased global integration, not loose monetary policy, Alan Greenspan, the former chairman of the Federal Reserve, has claimed.

"I don’t think that the boom came from a 1 per cent Fed funds rate or from the Fed’s easing. It came from the collapse of the Berlin Wall," Mr. Greenspan told a private audience in Canada on Friday.
Let's see if I have this straight.
  1. The collapse of the Berlin wall in 1989 caused home prices to rise more or less at the rate of inflation for 10 years.
  2. That same collapse somehow caused home prices to rise 100% in the next 5 years while Greenspan was slashing rates to 1%.
  3. The Fed slashing rates to 1% had nothing to do with the hyperbolic rise, but rather it was a 10 year delayed reaction because of the falling of the wall.
It takes a near miraculous amount of hope to think the masses will buy that story. Wait a second, is that hope or is it senility?

Buy and Hope

Dow Jones is reporting Home Builders 3rd-Biggest Gainers On Upgrades, Inventory Talk.
October 10, 2006 2:37 p.m.
The Home Construction index rose 3.4% on average Tuesday.

Builders were up across the board, with Toll Brothers Inc. (TOL), Standard Pacific Corp. (SPF) and D.R. Horton Inc. (DHI) enjoying the biggest advances, as their stocks recently were up 4.9%, 5.7% and 4.3%, respectively. The sector appeared to be responding to a decision by JP Morgan analyst Michael Rehaut to upgrade Toll to neutral from underweight, raise Standard Pacific to overweight from neutral, and boost D.R. Horton to overweight from neutral. Rehaut's upgrades were based primarily on valuation and his belief the industry will slowly improve over the next few quarters.

JMP analyst Alex Barron attributed the rally to the upgrade and inventory talk.
"People think all the bad news is priced into the stocks, and so people are buying into the expectation that the market is going to recover soon - even though there are no signs in the fundamentals that that is the case," Barron said.

Investors are trying to get into the sector ahead of the recovery. "You don't wait until you see the good news to buy them - you buy them at what you consider the worst of the news," he said.
Buy and hope, is that the story? It sure seems like it. Let's consider some individual plays, reporting just after those upgrades.

William Lyon Homes

William Lyon Homes Reports New Home Orders, Closings and Backlog
New home orders for the three months ended September 30, 2006 were 501, a decrease of 40% as compared to 834 for the three months ended September 30, 2005. New home orders for the nine months ended September 30, 2006 were 1,698, a decrease of 41% as compared to 2,861 for the nine months ended September 30, 2005.
The Company's number of new home orders per average sales location decreased to 9.1 for the three months ended September 30, 2006 as compared to 19.9 for the three months ended September 30, 2005. The Company's number of new home orders per average sales location decreased to 33.3 for the nine months ended September 30, 2006, as compared to 69.8 for the nine months ended September 30, 2005.

The Company's cancellation rate for the three months ended September 30, 2006 was 39%, compared to 15% for the three months ended September 30, 2005. The Company's cancellation rate for the nine months ended September 30, 2006 was 33%, compared to 13% for the nine months ended September 30, 2005.
KB Home
KB Home Delays 3Q Filing, Sees Lower Profit
Home builder KB Home said Tuesday it won't make a deadline for filing its third-quarter financial report because it needs more time to finish a review of its history of granting stock options, after a committee uncovered evidence of improper accounting for the options.

It also said that on a preliminary basis third-quarter earnings fell 32 percent, and forecast "significant changes" in financial results for the three and nine-month periods ended Aug. 31.

An internal committee found that "actual measurement dates for financial accounting purposes of certain stock option grants likely differ from the recorded grant dates," KB Home said in a securities filing.

KB Home said it plans to file the delayed 10-Q on or before Dec. 24, in order to avert defaulting on its debt. The company said the delayed filing could trigger a default on some of its debt and impair its ability to borrow against its credit facility, but was in talks with its lenders to get extensions.
D.R. Horton, Inc
America's Builder, Reports Net Sales Orders for the Fourth Quarter and Fiscal Year 2006.
Oct. 10, 2006--D.R. Horton, Inc. (NYSE:DHI), America's Builder, the largest homebuilder in the United States, Tuesday (October 10, 2006), reported net sales orders for the fourth quarter ended September 30, 2006 of 10,430 homes ($2.5 billion), compared to 13,950 homes ($3.8 billion) for the same quarter of fiscal year 2005. Net sales orders for fiscal year 2006 totaled 51,980 homes ($13.9 billion), compared to 53,232 homes ($14.6 billion) for fiscal year 2005. The Company's cancellation rate (homes cancelled divided by gross homes sold) for the fourth quarter of fiscal year 2006 was 40%, compared to 29% in the third quarter of fiscal year 2006.

Donald R. Horton, Chairman of the Board, said, "The current selling conditions in the homebuilding industry continue to be challenging, with higher than normal cancellation rates and increased use of sales incentives in many of our markets.
Please check out the stats.
                         NET SALES ORDERS
Three months ended September 30
2005 2006
------------------ -----------------------------
Homes $'s Homes $'s DropIn$
------------------ -----------------------------
Mid-Atlantic 1,319 338.0 1,044 246.0 27.2%
Midwest 835 217.7 415 114.2 47.5%
Southeast 2,102 550.5 1,533 318.0 42.2%
Southwest 5,992 1,220.7 5,016 908.2 25.6%
West 3,702 1,427.3 2,422 945.8 33.7%
------- --------- ------- --------- -------
13,950 $3,754.2 10,430 $2,532.2 32.6%
Quarterly Filing 10-Q for LENNAR CORP
During the third quarter and into the fourth quarter of 2006, conditions in the homebuilding industry continue to weaken. This market deterioration is driven primarily by excess supply as speculators reduce purchases and return homes to the market as well as negative customer sentiment surrounding the general homebuilding market. We are experiencing slower sales and higher cancellations (approximately 30% in the third quarter) which have impacted most of our markets and therefore, we are making greater use of sales incentives to generate sales in order to achieve our delivery goals which should result in lower inventory levels.

The economic factors that drive our business remain strong and, we believe, point to an eventual recovery and provide for a healthy long-term prognosis for the homebuilding industry. With our strong cash flow and balance sheet, we believe we are well-positioned to withstand the current difficult market and to meet opportunities as they become available.
"The economic factors remain strong?" If I am not mistaken a badly inverted yield curve thinks otherwise. I also sense I sense that it's time for another tune. This one is called Wishin' and hopin'.

Thinkin' vs. Wishin' and Hopin'

Let's tune in to Herb Greenberg's Blog. Herb is addressing the question: "How far do mortgage rates have to fall to generate a significant refi wave?" Citing information from UBS Greenberg Herb responds:
The academic answer is based on the likelihood of a borrower with a specific mortgage rate to refinance at a given interest rate… [I]f the mortgage market rates decline approximately 40 bps to 5.93% (roughly corresponding to a 4.13% 10-year Treasury yield), then 34% of the mortgage market would be marginally refinanceable. If mortgage rates fell to a 5.69% (or about a 3.89% 10-year Treasury), then 58% of the mortgage market would be marginally refinanceable. For the mortgage market to get to the levels of 2003 when virtually 100% of the market was fully refinanceable, mortgage rates would have to rally to 4.73%, (or about a 2.93% 10-year).” Not holding my breath…yet. Onward...
Well Greenberg seems to be someone that is Thinkin' instead of Wishin' and Hopin' and Prayin'. For everyone else there is a perfect cure for excessive Hopin'. That cure is called bankruptcy. As you may recall, Kara Homes was recently "cured" of excessive Hopin'.

In the meantime.....
We ain't fakin'
There's a whole lotta hopin' goin' on

Mike Shedlock / Mish

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