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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Mar 11 2012

What would Benjamin Franklin say about the current economy? Can we consider Benjamin Franklin as the first American personal development blogger?

Benjamin Franklin was one of the Founding Fathers of the United States and a noted polymath.  Fascinated by many things in life.  I just completed reading his biography and was even more enthralled by this great American hero.  His biography reads like a how-to manual on how to live a highly engaged life.  This is a man who invented the lightning rod, bifocals, a carriage odometer, and was also the first United States postmaster.  I deeply value his opinions and after reading his biography, I was left wondering what would Benjamin Franklin think of the current state of the economy?  Would he be pleased?  What would he want to be different?  I wanted to pull some items out of his biography and tie them into our current state of affairs.  We would do ourselves a great favor if we really followed in his philosophy of seeking out the truth, no matter if it shakes our own strong convictions.  In a way, he was one of the first personal development “bloggers” by publishing Poor Richard’s Almanack trying to reach out and help many Americans with common sense and rigorous observations.

Benjamin Franklin

“and gaining money by my industry and frugality, I lived very agreeably, forgetting Boston…”

Benjamin Franklin was always a character of frugality and master of using whatever he was given.  He did not come from a wealthy family.  He was merely getting by for the early part of his career but he always pushed forward.  He valued hard work, discipline, and even lived on a mostly vegetarian diet.  He was a man of pragmatism.  I’m not sure he would be fond of how people are massively in debt today and many do not value hard work.  He was proud of being an early riser.

“So I din’d upon cod very heartily, and continued to eat with other people, returning only now and then occasionally to a vegetable diet.” 

He wasn’t extreme in his diet.  He adjusted to this diet since he viewed people living on very little yet going into old age.  He reasoned that a low intake diet might be a reason.  There is even proof today of a low-caloric diet for longevity.  Given this, I’m not sure how fond he would be with the prevalence of fast high calorie foods that dominate the market.      

“I went on, however, very cheerfully, put his printing-housing in order, which had been in great confusion, and brought his hands by degrees to mind their business and to do it better.” 

Early on his career when he arrived back from a stint in London, he worked hard in a printing-house.  His philosophy was of hard-work but of intelligently making things better and getting others to carry their weight.  He mentions an Oxford scholar who found himself bought as a servant.   The fellow seemed very intelligent yet “idle, thoughtless, and imprudent to the last degree.”  In other words, having a college education is not the only thing in life that matters in regards to success.  I have this feeling that many are going to college just going through the motions but not putting in the extra time to go above and beyond the basics.  After the degree is in hand, it is what you do with it that matters.

“But he knew little out of his way, and was not a pleasing companion; as, like most great mathematicians I have met with, he expected universal precision in everything said, or was forever denying or distinguishing upon trifles, to the disturbances of all conversation.  He soon left us.”   

Benjamin Franklin put together a sort of brain trust group that met on a frequent basis to discuss ideas.  Any idea.  The group was to be objective and observe things for what they were and to keep emotions out of it.  I see how broken down our political system has gotten and I think Benjamin Franklin would be appalled.  People today would rather win an argument than get to the bottom of what is objectively the best solution.  His comment on a mathematician in the group reminds me that sometimes in life, a complex one as the one we are given, is never going to be precise.  To solve our economic challenges we must accept some imperfections to reach a better solution.  We would be wise to listen to one of the most accomplished Americans ever.

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