Mar 21 2012

The empty apartments of China – 64 million homes plaster the landscape of China. What does this tell us about China’s GDP?

China is one of the fastest growing countries in the world.  In 2000 China’s GDP stood at $1.1 trillion and today it is approaching $6 trillion quickly putting it in the number two spot of biggest global economies.  China has been growing so quickly that even cities are being built in anticipation of future occupants.  When countries begin to boom, a large portion of their early development is in the form of real estate growth.  China is no exception to this general trend.  Part of this has to do with the way the Chinese economy is setup.  State owned and operated enterprises take on a favorable role in the growth but not always allocate funds to the most needed areas.  Needed is such a hard concept to define because some will believe that housing should take precedent over say research and development and many would argue the opposite.  Some will argue that both can be done at once but usually in growth, one item comes before another.  The ghost cities and empty buildings do show an excess building on the real estate side for China however.

china empty apartments

Source:  Daily Mail

“As sprawling housing developments and skyscrapers in one of the world’s most populous countries, these tower blocks and recently-built neighbourhoods should be busy and swarming with people.

But on closer inspection these stunning pictures show elaborate public buildings and open spaces which are left completely empty.

The most recent pictures of unused housing emerged as China announced plans to build 20 cities a year for the next 20 years.”

An estimate 64 million empty apartments pepper the land.  And keep in mind this is a big boom for GDP but is it really quality growth?  So when we see charts like this:

china gdp

How much of this growth is going to be sustainable?  No doubt the country is growing at a strong pace but too much growth can also be a bad thing.  This probably sounds odd coming from our economy that is desperately trying to get out of the worst recession since the Great Depression.

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Mar 18 2012

Bay Area housing market – Northern California real estate still in a housing bubble. Bay Area housing prices for 2012. $300,000 in per capita home equity evaporated since 2005.

Bay Area housing is one of the most inflated real estate markets in the entire country.  It is an interesting social experiment seeing couples battle it out for a rundown property that is slightly bigger than a college student’s pizza filled apartment.  Northern California housing has been in a bubble for as long as I can remember.  Prices have fallen deeply in some regions like Contra Costa County and Solano County.  Places like Sonoma, Napa, and Alameda counties have all witnessed intense corrections since the peak in prices were hit.  But what will happen to Bay Area housing prices in 2012?  The trend is likely to disappoint those thinking that prices will serendipitously rise up simply because of the Golden Gate special touch.       


The rise in Bay Area home values is part of the California housing bubble yet is more pronounced in the north.  I’m not sure if we should be proud about being the leading spot of reality-disconnected real estate in the world but that is what we have.  Even with the dramatic decline in Bay Area home prices, some choose to ignore the numbers that prices have corrected.

Take for example this data:

Bay Area median price 

November 2005:                              $625,000

February 2012:                                  $325,000

Bay Area housing has seen a 48% price decline for the entire region and has wiped out $300,000 on a per capita home basis yet some still choose to ignore that a correction has occurred.  Is seven years not enough to bring some people back to reality?  Yet when it comes to Bay Area real estate, this is what we are dealing with.

Many buyers in the Bay Area are currently investors:

Bay Area housing


Why does the above matter?  Because these investors are looking for cheap properties and they are a big part of the market.  26 percent of all purchases last month came from investors and the chart clearly shows the path of where things are heading.  The typical property they bought cost $230,000.  We are a long way from that $625,000 figure.  All those funky California loans are sure coming back to bite us hard in 2012.

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Mar 14 2012

How many banks are in the US? Number of US banks shrinks while banking assets increase.

Do you ever wonder how many banks are active in the United States?  Do you ever think about the amount of assets held at these banks?  More people today have taken a thorough desire at learning the details about their banking system and this is for the better.  US banks are backed by the Federal Deposit Insurance Corporation, or FDIC for short.  What is surprising since the financial crisis hit is that the total asset base of banks has increased while the number of US banks has actually decreased.  One of the big issues was around the too big to fail banks of our current banking system.  Much of the banking wealth is aggregated into a few large banks.  Not much has changed to reverse the too big to fail model.  To the contrary these too big to fail banks have gotten even bigger.  So how many banks are in the US?

dollar bill george washington

How many banks are in the US?

To find the current figure on banking data we can head over to the FDIC site and pull up a few charts.  The first chart will look at the total number of US banks:
number of us banks

Source:  FDIC

The number of FDIC insured banks is under 7,500.  The trend has moved in one direction since 1995.  It is surprising to many Americans that even prior to the Great Depression, the US had over 20,000 active banks.  The consolidation of banking into a few larger banks is a long-term trend.

While the overall total number of banks has shrunk, the total asset base has increased:

assets of savings institutions

US banks have roughly $14 trillion in total assets.  The term asset is used loosely because many of these banks have real estate loans that are valued significantly lower than their current book value.  In accounting you are taught to mark-to-market values to get an accurate picture of your true holdings but this rule was suspended during this crisis.

The rise of problem institutions is still very high for US banks.

problem bank list

While much of the current data seems to pointing at more jobs, there are still a number of banks in deep trouble.  Keep in mind that US banks need to keep certain capital requirements just to stay compliant.  A recent stress test done by the government found that four large banks failed the actual test.

How many banks are in the US?  The total number is 7,357.

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