You've all probably seen or heard about the recently released Harvard Housing study. Among other things, the report discusses the fact that the median wage-earner is unable to afford the median priced home and forecasts a drop in real estate prices to the 1999 level. The fact is that the study comes about one year too late for investors and consumers.

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• http://www.jchs.harvard.edu/

An excerpt from my recent article, 'Lawrence Yun Continues to Mislead on Housing' summarizes some of my forecasts in the real estate market, first released in 2006:

Some of the high fliers of 2007 have had a tough start to the new year. And the worst performers of last year have fallen even more.

Below we highlight the 25 best and worst performing stocks of 2007 along with their 2008 year to date returns. The Russell 3,000 is currently down 6.48% year to date, so each basket has done worse than the entire index. The best performer last year, FSLR, is down a cool 23% already. Some '07 winners are up this year, however. MOS, CF, TRA, RCCC, CPHD and BZP were up more than 150% in '07 and are up thus far in '08.

Quite a wild week for the last independent subprime lender! NovaStar Financial (NFI) terminated its top two executives, received another month's extension on its waiver with Wachovia (WB), laid off 170 of its remaining 200 employees, and lost its NYSE listing.

The NYSE updates its short interest numbers twice a month, and below we highlight the most up-to-date list of stocks with the highest short interest as a percentage of equity float.

As shown, the list is filled with homebuilders, mortgage companies and financials. BZH leads the list at 83%, followed by HOV (76%), NFI (75%), FED (69%) and SPF (67%). With the exception of NFI, every stock on the list is down this year, and in most cases, down significantly.

Quote of the Day

It’s getting to be a joke. Week after week, month after month, Wachovia (WB) has been extending waivers on broken covenants by NovaStar (NFI). The latest extension, until January 4, follows an extension last week.

Makes you wonder if either Wachovia's possible financial hit from NovaStar is bigger than generally expected and/or somebody has pictures on someone and/or Wachovia is merely pushing this off so it will be next year’s problem. (After all, if Wachovia doesn’t grant the waiver, it gets a bunch of worthless assets.)

(XLF)– Financial Select Sector SPDR – A near-2% gain in the underlying share of the financial sector ETF spurred bullish option traders to pull out the proverbial stops. With more than 360,000 contracts trading before noon, the XLF is the day’s most liquid option family by a long shot, and call buyers are putting pedal to metal with 3 times more calls in play than puts. Of interest here is massive buying interest in January 35 calls, which attracted a volume of more than 124,000 lots, with premiums up some 43% on the session. Calls at the 34 strike traded nearly 68,000 times, mostly to the middle of the market.

That’s what several groups, including the National Training and Information Center, the NAACP and homeowner and community groups from around the country, are suggesting.

It’s an interesting idea, and you can read more about it here, on the NTIC’s website.

Those of us who pointed out problems with NovaStar (NFI) back in the day were laughed off the stage as the market for securitized mortgages grew to be so large that it ignored quality in favor of quantity.

Of course, as we all heard at the time, the ratings agencies had given NovaStar’s securitizations their Triple-A stamp of approval. “Put bluntly,” wrote Howard Hill, the unofficial chief commentator at NFI-Info.com, which later became NFI-Info.net when it lost its dot-com status, “the credit quality question is a pure red herring.” Hill, a long-time vocal critic of yours truly, was responding to something I had written. He later went on to become the a portfolio manager at Babson Capital, where this past summer he led Babson into an apparent ill-fated, last-ditch, life-saving investment at NovaStar.

In the past I've recounted the sad story of Novastar Financial (NFI), a subprime lender that was hyped by an anonymous Internet guru called "Bob O'Brien," who runs a stock market conspiracy website called "thesanitycheck.com."

"O'Brien" was identified by the New York Post some months ago as Phil Saunders, a former used medical equipment salesman in Irvine, California. It always struck me as weird why anyone with half a brain would take the advice of a former used medical equipment salesman on any subject unrelated to used medical equipment, if that.

Troubled home lender NovaStar saw its stock plunge more than 50% Thursday after the company announced a large quarterly loss and conceded bankruptcy is a possibility. For the quarter, NovaStar lost $598 million ($64.05/share) after recording profits of $25.3 million ($2.91/share) last year. Scott Hartman, CEO of NovaStar, said, "As the mortgage environment has grown progressively worse through 2007, we have greatly reduced our business activity... Going forward, our strategy is to manage the cash flows from our portfolio of mortgage-backed securities and operate our retail brokerage operations." The company has halted mortgage-lending and said it will not return to the business until the environment becomes more stable. The report also listed scenarios where the company would seek bankruptcy protection, and added that there was a "high likelihood" its shares get delisted from the NYSE. Shares of the company, which traded at the split-adjusted rate of $106.60 at the beginning of the year, traded down 56.6% to $1.99 in midday trading Thursday.

NovaStar Financial (NFI) finally revealed what many had suspected all along - that a bankruptcy filing is imminent. In fact, NovaStar mentions the word "bankruptcy" over twenty times in its recently filed 10-Q. The Company also chose to suspend the dividend on its Series C and Series D-1 preferred shares. The GAAP loss for the quarter was a stunning $64.05/share, and NovaStar admitted that it had a negative net worth:

Due to the fact that we have a negative net worth, we do not currently have ongoing significant business operations that are profitable and our common stock and Series C preferred stock are likely to be delisted from the New York Stock Exchange, it is unlikely that we will be able to obtain additional equity or debt financing on favorable terms, or at all, for the foreseeable future. To the extent we require additional liquidity and cannot obtain it, we will be forced to file for bankruptcy.

As part of yesterday's announcement of a third quarter loss of $598 million, or $64.05 per share, subprime mortgage lender NovaStar (NFI), which is no stranger to readers of my writing, said that there “is a high likelihood” that its securities will be delisted from the New York Stock Exchange, which is reviewing its listing status.

The NYSE is expected to rule by December 5. While the company said it is exploring alternatives, it also said that next stop is is likely to be the over-the-counter Bulletin Board.

Quote of the Day- "From the House's Mouth"

Well, we knew it was coming based on NovaStar's (NFI) September 17, 2007 8-K -- the NYSE has moved to delist NovaStar's common and preferred shares from the Big Board. Due to the termination of its REIT status, NovaStar no longer meets the market capitalization requirements for listing on the NYSE. (The NYSE allows REITs to list under lower threshold requirements.)

NovaStar, for its part, put out a press release stating that it "intends to request a review of this determination and will explore alternative arrangements for the listing or quoting of its common and preferred stock."

In a press release Tuesday afternoon, NovaStar (NFI) revealed that it was selling its existing portfolio of servicing rights and servicing-related advances to Saxon Mortgage for $175 million, about a $70 million premium to their recorded value at June 30, 2007. NovaStar expects to subsequently exit the servicing business. The sale will enable NovaStar to repay its existing $100 million Servicing Rights Facility with Wachovia (WB) and its existing $80 million Servicing Advances Facility with Deutsche Bank (DB).

The big winner on the deal was Deutsche Bank, which will fully recover its credit line extension to NovaStar in the form of the Servicing Advances Facility and DB will also earn deal fees for advising NovaStar in the transaction.

A month ago, we highlighted that TBSI was the best performing stock in the Russell 3,000 year to date at 337%. Thirty days later, the stock has nearly doubled and is up 628%. What a year for TBSI!

The other stocks that were on the list last month have also done well. FSLR is now up 357% versus 230% a month ago, and BCSI is up 300% versus 250%. These are market leaders, so they will probably continue to do well if the markets continue to climb throughout the fourth quarter. If the market has trouble though, these will probably get hit the hardest.

It's been almost two months since NovaStar Financial (NFI) filed a prospectus for its third securitization of 2007, NovaStar Mortgage Funding Trust 2007-3, but in that time frame, it seems that little progress has been made towards closing the $548 million deal.

It's not as if NovaStar couldn't use the cash; they are required to repay $30 million in advances on a Servicing Rights Facility with Wachovia (WB) by October 18th. The securitization market for RMBS remains absolutely frozen, as only Thornburg (TMA) has completed a deal since August. Even then, Thornburg admitted that most of the MBS went to one buyer.

NovaStar Financial said it will not declare a planned dividend on its common shares, thereby forfeiting its status as a real estate investment trust under IRS regulations. It said it could not meet the distribution requirement of about $157M of taxable 2006 income due to its inability to complete a planned rights offering, liquidity demands, and a substantial decline in market capitalization over the last few months. "Clearly, we did not anticipate the drop in market value or the level of demands on liquidity caused by the market turmoil this summer. Based on these events, we now believe canceling the previously planned dividend is the only reasonable and prudent course of action," said CEO Scott Hartman. Given the loss of REIT status, which will be retroactive to Jan. 1, 2006, NovaStar said there would be a "significant adverse impact" on third-quarter financial results, including an expense for the 2006 tax provision. Nevertheless, the mortgage lender said it expected an anticipated refund from tax losses this year would offset the new tax liability. NovaStar said it also was discussing its listing status with the New York Stock Exchange. Shares plumetted 18.7% to $6.70 in extended trading following the announcement; they are down 92.3% YTD.

Although US markets have registered single digit returns this year, there are plenty of stocks that have had stellar years and plenty that have had horrific years. Below we highlight stocks in the Russell 3,000 that have gained over 100% year to date as well as stocks that are down more than 60% year to date.

As shown, there is only one stock out of 3,000 that has returned over 300%. TBS International (TBSI), an ocean transportation company, has been the best performer at 337%. TBSI is followed by ONXX (286%), BCSI (250%), FSLR (230%) and ELON (228%). The remaining are up between 100% and 200%.