I have been gathering these anecdotes for a couple of weeks from private Emails, public responses to my blog, responses to various audio broadcasts I have done, and personal and private messages from people on the Motley FOOL, Silicon Investor, and other places.

Yes, I know that anecdotes do not make a market but the number of cities and town involved really suggests that something serious is at hand regardless of what the stock market thinks. I will have more thoughts on that idea in a later blog.

In the meantime, here are still more anecdotes:

Trans World Financial – Orange County
I am a mortgage broker here in Orange County, California. this is from my wholesale reps in the business. About a year and a half ago my reps from WAMU and COUNTRYWIDE said that up to 80% of their pipelines were filled with Option Arm Loans. Most of the ones getting these loans were coming off interest only loans who could not afford a fully amortized loan so they needed to do the option arm loan. I would guess that all the people that are coming off the short term interest only loans can only afford the option arm because their payments are have gone up too much for them to bear.

If only the National Association of Realtors could see what kind of loans are being done or have been done in the last 3 to 4 yrs they would ALL shout at the top of there lungs CRASH!

The last time we had a housing boom was in 1989. it crashed for 6 yrs. No one wants to talk about the type of loans we have today compared to then.

In 1989 the most aggressive loan we had my have been the FHA at 97% LTV. Unfortunately most could not qualify for that here in Orange County because the loans were too high. But in Riverside County almost everyone could. Where was the largest foreclosure rate back then? Riverside County.

Today, we have:
Neg Am Option Arm Loans, (Bombs)
Interest Only Loans
Stated Income/Stated Asset Loans
100% financing
125% financing

why doesn’t the REALTORS LOOK AT THIS? BECAUSE THEY ARE IN THE BUSINESS OF SELLING HOMES! Even on the news today, Realtors will say the market is cooling or stabilizing but never will they say that it is declining because they will never sell a home. No Realtor in the world will admit this or they will never sell a home. remember, we have 500,000 licensed real estate agents here in California.

The biggest Bomb we have to me, is Stated Income/Stated Assets to 100% LTV. I would bet 80% of these borrowers are not making anywhere near what is stated on the application and to top that off they qualify usually at 50% back end debt ratio. (Mish, if you write on anything about housing you have to mention this!) Besides this loan, the other bomb is NO DOCUMENTATION REGARDING WORK! WE DON’T EVEN HAVE TO PUT A JOB OR INCOME ON THE APPLICATION! THERE IS NO VERIFYING ANYTHING! THE LENDER JUST LOOKS AT THE CREDIT AND FICO SCORE!

I have been in this business since 1988 and I have never seen so many cheap, easy, funky, weird loan programs all that have contributed to the bubble and will eventually contribute to the biggest bust in the history of the Real Estate Market.

Please reply to this. I would very much like your opinion!

[Mish notes: The above email sender was kept anonomyous by request. I responded in private as well. Whether anyone asked or not, all names were removed from these anecdotes. Later in this blog hear from a real estate broker from Birimgham Alabama and see snips from an internal email circulated at the Kaiser Foundation Health Plan and Hospitals.]

Detroit Suburbs
Housing is back pretty much to 2000 levels in our suburb. We did a whirlwind buy-a-house-in-four-days relocation tour when we moved here in 2000. One of the houses we seriously considered is 4 blocks from the house that we eventually bought. I walk past it almost every day. They wanted $205,000 in 2000, and they sold it soon after, so I assume they got close to their asking price.

Three years ago I helped a friend with her house hunting. We looked at a house two down from that one we almost bought. They were asking $250,000 and it wasn’t in the shape that the first house was. That also sold within weeks.

This year, the house between those two went on the market. $199,000. Even I couldn’t believe it. I took a flyer and from the pictures it looked nicely renovated. Same size, same floor plan.

Here’s an interesting quote from the Detroit area: “I recently sold a house in Rochester Hills,” Waquad says. “It was purchased a year ago by the seller for $615,000 — a newer house. He changed all the appliances, the carpets and painted. He never lived in it. He must have spent at least $20,000 to $30,000 fixing it. We got it for a buyer for $440,000.”


We really, really wanted to buy in 2005. That could easily have been us.

No comments on what a dump Detroit is, please. These are beautiful suburbs and lovely homes that you would find anywhere in the U.S. The downturn in housing is taking place with the rest of the U.S. but has been worsened by years of incompetence at the Big 3 coupled with the rapid globalization of the industrial sector.

Myrtle Beach Florida
Just got back from a weekend in Myrtle Beach for my brother’s bachelor party. Flew down Thursday and came back Sunday. I haven’t been there in about 2 years and alot has changed since then. And I mean a lot. Here’s some observations:

(1) First thing I noticed is, of course, tons of new construction. Everything from roads to condos to amusement parks to clubs, its all under construction. Now this is no doubt a growing vacation destination so I can understand the need for building (its not just a golfers paradise anymore – there’s lots for the young adults now too — not the best for kids yet but its getting there). But there were still some troubling signs.
(2) Tons of signs for condos for sale. Only $170,000 if you stop by today.
(3) Lots of popular places have been closed down since my last visit and re-opened by a new owner with the same type theme. For example a great sports bar we used to hang out Yesterday’s is now gone and being replaced by a new one I believe. The old Planet Hollywood is now Club Kryptonite or something. Now there was a reason these establishments went under in the first place.
(4) The Granddaddy golf course (Pine Lakes) is shutting down in November for 2 years to allow for the construction of condos and townhouses on the grounds. The Granddaddy is the oldest golf course in Myrtle Beach and still has the charm and character of the old days. And to see that being breeched by the greed of the money hungry condo-builders is pretty sad, but it shows that (a) everyone has their price (b) there’s always a bigger sucker out there.
(5) Lots of current condos that have been up for maybe 5 years were having their exterior worked on (and probably the interiors as well). Like new windows and doors being put on. Refacing the brick siding on some of them. What’s the reason for this? Was it shoddy construction to begin with? And is this “renovation” actually propping the economy a little longer by keeping some of the new construction workers employed?
(6) I live in New Jersey and picked up a couple of my brothers friends from the airport on Friday. First thing 1 of the guys said was “Wow, only $170,000 for a condo down here. God there’s a ton of money to be made.” This guy is 27 and is not very financially well off and is a perfect example of the mentalilty of Joe 6-pack. I tried to explain to him that this is probably not the best time to be buying real estate, but he wasn’t having any of it. He was too busy running the numbers of how much he could make by buying it and renting it out all year. Now mind you I found 2 large 2 BR, 2Bath townhouses for the weekend for $105/night last minute. And I had my choice of any room I wanted in any hotel up and down the coast. This is not busy season, but I’m sure this is more the norm than sell outs are, especially with all the new construction going on.

It just goes to show that this bubble will be perpetuated until the mentality of Joe 6-pack is changed from wealth creation to wealth preservation.

Orange County California
Well the condo conversion projects in Orange County are starting to feel some pain I think. Just got a postcard in the mail: Auction for 34 remaining ‘homes’ with minimum bids up to 38% off last sale price. lol I can’t remember how many condos there are there but I think it’s about 120ish.
Oh and for the first time in 3 years I’m seeing rental properties advertise several hundred dollar finders fees to get people to move in. I got one on my door. You would think with all the apartments that have been converted to condos in this area just this year, they wouldn’t have any problem finding renters.
Oh wait, I forgot, they are building a boatload of apartments in Irvine and Newport.

Jersey City
FWIW, a real estate agent friend, who left IT to sell real estate in the formally hot downtown Jersey City market, has bought a hot dog stand. We run our four legged dogs together in the park and he was, formally, one of those always optimistic sales types. He said they have had hardly any customers coming into his office for the last six months, he is broke, and he needs to earn some money.
He also needs to sell both his Harleys fast to make is monthly nut.

New York City
the big new-build jobs are still going strong but as the pipeline ( many years of development for any new NYC work) is built out that is slowing. Many of the trades unions have stopped accepting travelers (union members from other locals outside of the area) which means the job flow is decreasing.

My company is predominantly residential, mainly in Manhattan but also in Westchester, Brooklyn and occasionally on Long Island. I maintain those licenses. The phone went dead during the summer and remains moribund. I had a very nice piece of work go all the way to a start date when the owner decided not to proceed with anything other than a very small cosmetic update. Two other very live recent buyers chose to only do the bare minimum prior to moving in rather than the full kitchen/bath upgrades they first envisioned. My current activity is follow-on bits and pieces from previous customers, a developer grade spruce-up on a recently vacated apt.and constant collection activities from customers happy with their work but now stretching out payments unmercifully.

My pals in the business are all singing the same song and our workers are partly employed these days. There are many very professional guys at every supplier’s door offering cards and looking for work.

I needed a particular stone to match existing counters at an upper westside apt. recently which called for numerous trips to many stone yards looking for the closest alternative. The activity level at these yards was substantially down from recent times. I eventually found a stone that would work but was told that all the slabs were committed to other contractors. The next day a senior salesperson called me to say that if I produced a check I could take whatever slabs I wanted immediately because the other buyers were not forthcoming. Not only was I happy to secure the stone, but I realized when I cut the check that the price was only somewhat high from a yard notorious for always being ridiculously overpriced.

I just spoke with my realtor buddy from outside Boston. he said it is dead. Homes that were 800k a year ago won’t move at 600k this year.

Troy, MI
I went to the Palm restaurant for dinner last night. The place was empty. Maybe five tables were occupied, and there were a few people in one of the private rooms. Two years ago it would have been packed on a Thursday night.

Palm Beach Florida
Deflation is here, in Florida. Just got home from a bar in Palm Beach County. Bottles of beer were 0.25, as they are every Thursday. This is 1982 pricing. The place was packed, quite the party. People were getting so drunk there were fights in the parking lot and people passed out everywhere. The point, however, is that this place had to give away the beer for free just to stay in business. I can’t remember the last time I paid less than $4.00 for a beer in Palm Beach.

Central Florida
I am visiting Central Florida, and have gone to numerous retail outlets. The place is vastly over-retailed. I have not seen even a half-full restaurant or more than 2 people in a grocery line or more than a couple of rows of cars at the mall.
So far from retail expansion, I think we can expect massive retail consolidation, at least if Central Florida is any indication.

Boston Suburb
Peabody, MA, a suburb north of Boston
I had two contractors ask me this morning if I had any work coming up for them, one a plumber the other an electrician. They said work was really slow and they were starting to worry. These same guys I couldn’t get a return phone call for the past 5 years.

Just an aside I just talk to the electrician I mentioned earlier, about an hour ago and he told me he had lowered his prices by 25%, just to keep busy. He said things were getting worse week by week and he was really worried about keeping his bills up.

Kona Hawaii
The vacation rental bloodbath is in full swing this year and more owners are opting to try long term…w/o success of course!

Sterling Heights MI
My daughter just brought a house in Sterling Heights, MI on Monday. She got married in June of this year and had these nesting instincts to move out of the one bedroom apartment that she and her fiancée were renting for $500 per month with water and heat.
They picked up a two year old house with new houses under contract for $317,000 being built next door and in the sub. The house that they picked up sold in 2004 for $324,000 and the owner put in a $15,000 to $20,000 brick deck with nice boulders and trees. The owner put the home on the market June 10 at $350,000. She was relocated to Tennessee and had two house payments. My daughter and her husband paid $266,000 or a 24% discount to the asking price in June of this year. Oakland County is foreclosing 2400 homes per month. We went to a bank auction in May and a foreclosed home with a transfer tax stamp of $212,000 in February of this year went for $135,000. The buyer has put it on the market for $175,000 but has yet to sell the house.

Palm Beach
An anecdote: The Border’s I usually visit in Boynton Beach shut down. I went to one at the Palm Beach Mall and they didn’t have anyone manning the registers, all purchases were made through the single person manning the coffee machines.
In west palm beach I’m seeing a lot of for sale signs that have morphed into for rent signs. Some have both of them up.

Los Angeles
The restaurants we frequent here in Los Angeles have been nearly vacant or experiencing greatly reduced business for the past two months.
Even the exceptions are down. One example is the Wood Ranch restaurant at The Grove, which appears to be as full as it usually is, but their bar is now handled by one or two bartenders, down from four a few months ago.
So I expect sales are down even in places that still look busy.
As a restaurant investor said on “The Restaurant” which appeared last year on CNBC, “Everybody thinks that a busy restaurant is a successful restaurant, but I can tell you from experience that a busy restaurant is just a busy restaurant.”

Auburn Hills Michigan
(in reference to More Anecdotes)
I am in Auburn Hills, Michigan. It is an outer northern suburb of Detroit. The north suburbs of Detroit are much wealthier than the southern suburbs, having the vast majority of the high tech auto industry. Chrysler headquarters are a 30 minute walk away. Pulte headquarters are just down the street (one township south).

That’s very odd that you talk about a secular trend away from consumption in that article. Was just thinking about that last night…in a nearly empty K-smears…after visiting a Home Depot where there were more employees than customers (more CASHIERS than customers!). Started wondering what I was doing there. Haven’t “needed” to buy anything from there in many months, and in the past few months haven’t bought anything but food and gas. I have all the material possessions I want…and then some.

Auburn Hills Michigan (second anecdote)
Hey Mish, I have an even more interesting anecdote for you, involving landscaping. Every fall I go to a stone dealer because they are trying to liquidate what they couldn’t sell during the summer. The prices are great but selection is normally very limited. Not this year. They had all kinds of stuff on liquidation, and a lot of it was premium. Ordered some stuff and went to the backup yard to pick it up. There were pallets everywhere, and that yard is normally almost empty this time of year. I asked the guy what was up. He said it was all liquidation material. They are trying to get rid of more stone than they normally sell in a summer. They had ordered 4,000 pallets of stone in spring, expecting a blockbuster summer. Didn’t work out that way. They have been liquidating for a month and they have 2,000 pallets of stone left to liquidate.

I have also noticed the same restaurant trend as your poster. The recent change is not as severe here but I’ll give you an example. We occasionally go to a restaurant I really like called “Little Daddy’s”. The food is really good and the prices are fairly cheap. We normally park at the bank next door because the restaurant lot is always full on Saturday and Sunday. We have gone on two weekend days in the past month and both times it was over half empty. Papa Vinos hasn’t been as busy on Sizzlini Tuesday as it used to be either.

I don’t give a darn what Wall Street says. People are cutting back on spending fast. Recession is unavoidable, and it feels like we are already in one.

Kaiser Foundation Health Plan and Hospitals
Mish, I love the blog and your analysis, keep up the good work! Here’s something you might find interesting.

I’m working at a large healthcare provider on the west coast right now. 2 weeks ago an email message was sent from the CEO to all senior managers for distribution to their subordinates, it was dated August 31.
I can’t give you the entire email since it was labeled confidential, but I’ll give you the highlights. Anyone who doesn’t believe the economy is in for tougher times right now is either ignorant or in denial, or both.
…………I am writing to ask for your help and cooperation at an important point in our organization’s history. For the past few years, we have been growing nicely. We’ve continued our mission of providing affordable, high-quality health care services and improving the health of our members and communities………Our progress has not been perfect, but overall we are on track and moving in the direction our strategic plan calls for us to go.
………..The problem is this: for 2007 and 2008, our revenue from Medicare will be basically flat, with some possibility of an even lower number in 2008. We are one of the largest Medicare recipients in the country—Medicare generates roughly 30% of our revenues. Given all of the cost pressures on the U.S. government from so many directions, we think it’s unlikely that the Medicare funding stream will improve for 2009 and beyond…….
………..More specifically, we need to face that reality for 2007 and 2008. Assuming we meet our current 2006 goals, we will need to deliver trends in the 5 percent range for 2007 and continue equivalent aggressive cost management trends into 2008. If we do not meet our 2006 objectives, it will create an even greater challenge for us to bend our cost trends in 2007. Shifting our revenue needs to the private marketplace is not an option. That means we need to manage our cost increases for 2007 and 2008 down to a trend level we haven’t seen since 1998. Health care costs in this country are rising to unaffordable levels. The marketplace is feeling the pain of prior-year cost increases, and we need to do whatever we can to alleviate that pain. Maintaining our market share will be contingent on the success of that effort.
………..We can’t wait until 2007 to start that cost-trend reduction process. So, we need to start now. We will begin today to take steps to get our expense trend down. We will start with a few basic budget control steps. We will put an immediate freeze on additions to staff, effective September 1, our goal is to not grow our staff from September 1 through the remainder of the year.
………..We will also stop purchases of new furniture and comparable kinds of expenditures………Our furniture expenditures aren’t very high, but the symbolism of controlling hires and then redecorating an office could be misread. We will, however, save some real money by also freezing upgrades or replacements for nonessential PDAs and laptops. We have more than 40k laptops alone in this organization, so freezing upgrades/replacements will save money fairly quickly. We also are cutting back on a number of corporate meetings and gatherings. We will try, for example, to bring 200 people to meetings where we used to bring 400, and we will use less expensive alternatives/locations. Again, travel expenses and meeting expenses both add up and make a visible statement about cost constraints.
…….The spending constraints I mentioned above are just the first steps. The real work will be done through eight new regional two-year financial plans and through new two-year plans for each division. We’ve identified a dozen potential, major initiatives and opportunities to help the regions achieve the 5 percent trend, we will be working to evaluate the approaches and get the best of the new plans in place as quickly as possible.
This organization employs over 140k people in 9 states, all of them received this email. What the email doesn’t tell you is that 300 contractors in Southern California were terminated just prior to this, and they are still looking to cut more contractors. They haven’t frozen hiring, they are outright letting people go.

Northern New Jersey / NYC
There are some interesting things going on in my part of the country–ie. North NJ, just outside of NYC.

Despite the fact that this is allegedly one of the wealthiest parts of the country, the popular radio station has an interesting promotion. Instead of offering cash, listeners send in their largest bills, and those lucky ones who are selected have the radio station pay them off.

They are also running a few humorous spots that, in my view, point to growing popular awareness of the vast amounts of consumer debt, and the strain of energy prices. Example: a guy goes in to buy gas for his car. The clerk asks: cash, credit, or mortgage.

A walk around the bookstore shows more and more shelf space being devoted to consumer debt, and its social effects. The mood (and perhaps time preference) in this part of the country, is certainly starting to shift, in my opinion.

One more anecdote. I work in health care. I have a patient who I see for a hand injury who happens to work in sales. He has 2 jobs. He sells both autos and mortgages. He told me almost a month ago he had a lot of sales. Now, he hasn’t sold a car in 2+ weeks. He also says the mortgage business is slow as well. It looks like it is going to get a lot slower, once winter comes around.

Your deflation call is looking more clairvoyant. I’d appreciate your thoughts on the recent PPI numbers that were released (significantly below expectations), as well as your take on the sell off in energy.

FWIW, I think the sell off in oil could be a symptom of a slowdown in Asia, particularly in China. I don’t trust their economic numbers, and it would seem to me that one of the few ways to detect a slowdown might be through the action of the commodity markets.

Keep up the good work.

Detroit Area Suburbs
My wife has been offered a few listings lately and she turned them down. Sales are so uncommon it’s just not worth the time required or the stress of dealing with harried owners. You can drive down many streets and see every fourth house for sale. I suspect there are very, very few actual sales with prices higher than five years ago. I am sure some sales are at prices no higher than in the late 90s.

Having just retired from the swimming pool equipment business (a direct competitor of Pentair), I can verify that the pool business is cooling very fast (pun intended). Until the big run up in housing in the Sun Belt around 2000, the pool business was basically a no growth but very stable business. That changed to the point that nearly everybody in the business put on those “beer goggles” and came to believe that the fast growth was permanent. In fact, it was just a reflection of the massive mania in the housing business. The ability to borrow huge amounts of money using the equity in your house as collateral turned our sleepy little business into a “growth business”. This period has now ended, and I expect lots of lay offs and bankruptcies for the foreseeable future.

Birmingham Alabama

I’ve been in the mortgage business in Birmingham, AL for almost 28 years and the last 16 of those years have been as owner of my own small brokerage operation. I have been blessed beyond measure for the majority of those years and have closed in excess of over $100 million in loans since 2000. Needless to say, business has been great! However, in the last few years, many folks have jumped on the mortgage bandwagon and like most cities, Birmingham became deluged with lenders almost overnight. I went to church with a guy who was delivering pizza’s as a full-time job, only to get hired on with one of my competitors as a loan originator. He even managed to eek out a living over the last 24 months without ever having been in this industry. He became a branch manager for this company in short order and had a staff of 4-5 originators working with him. All this business out there has allowed people like him to flourish with the rest of us until this downturn began to get some teeth here. This company has since gone out of business and I’ve lost track of what became of my friend. My own business has dropped off to the point that I made 4 loan applications last month and one of those was to a couple that has to sell a home that they had not even put on the market yet. I’ve taken two loan apps so far in the month of October and things are not looking good for the end of the year. I’ve seen many new guys coming into the area of Birmingham that I have worked for years and wonder how they are going to make ends meet. Most, if not all of the agents I’ve worked with for many years are saying they’ve never seen things so slow and the newer agents are simply befuddled as to what they are going to do after having obtained their real estate licenses. This downturn is for real and I think it may only be the tip of the proverbial iceberg. I just hope to be able to hold on and get through it for whatever time frame we have to endure and come out on the other side with at least the opportunity for a bigger piece of the pie that remains!
Keep up the good work….
Mortgage Guy

Mish Comments:
The above was just a representative sample of some of the emails I have been receiving.
Chiming in were some places I never even thought about such as Birmingham Alabama and snips from an internal email from the Kaiser Foundation Health Plan and Hospitals, a huge company I never even knew existed.

Perhaps the latter suggests that health care employment as an economic driver is about to go down the tubes along with housing. Yes, I am aware that these are just anecdotes, yet I caution you to ignore them at your own risk.

This recovery is over. All we need is a confirmation from the stock market to confirm it.

Mike Shedlock / Mish/