Philippine Real Estate and Construction Loans Are Even More Out of Whack As of September 2015!

It sure looks that way, judging from this chart:

It looks like Real Estate and Construction Loans as a percentage of Total Loan Portfolio (TLP) rocketed past its historical range of 12.6% to 16.6% of TLP sometime in 2011.  That ratio peaked at 20.55% as of September 2013 but has bottomed out at 18.61% of TLP as of December 2014. In the last nine months of the year, this ratio has climbed back up to 19.96% as of September 2015.

Now, are we up to the levels of the previous real estate boom? (as in mid 1990s to 1997?) Honestly, we don't know.  BSP data only goes as far back as 1999 when the previous real estate bubble had already burst and the financial system was most likely deleveraging as evidenced in this chart.

Construction Gross Value as a Percentage of GDP Has Is at a 25 Year High! - Updated as of 3rd Qtr. 2015

Has the Philippine Real Estate Bubble Already Burst?

Is There a Real Estate Bubble in the Philippines?

Are Philippine Real Estate Loans Out of Whack?

Construction Gross Value as a Percentage of GDP Has Is at a 25 Year High! - Updated as of 3rd Qtr. 2015

Last May 4, 2015, we noted that Construction Gross Value (Construction GV) at 11.21% as of the year-end 2014 was already well above its historical average of 9.48% of GDP since 1990.  This ratio has run at an above average rate since 2009 and has already eaten away at the "cumulative underhang" or underinvestment in construction that has taken place since 2004, when the excessive investment in construction that took place in the mid to late 1990's was being absorbed.

As of the 3rd Qtr of 2015, Construction GV as a percentage of GDP now stands higher at 12.06% of GDP - an all time high for the past 25 years.  But the real story is that Cumulative Construction GV has gone well above equilibrium and now stands at 4.2% above equilibrium, a rise of 3.0% in just nine months.  Given all the planned new projects that are already at the execution stage, the momentum in Construction Investment will continue.

Construction Gross Value as a Percentage of GDP Has Is at a 25 Year High!

Last May 4, 2015, we noted that Construction Gross Value (Construction GV) at 11.21% as of the year-end 2014 was already well above its historical average of 9.48% of GDP since 1990.  This ratio has run at an above average rate since 2009 and has already eaten away at the "cumulative underhang" or underinvestment in construction that has taken place since 2004, when the excessive investment in construction that took place in the mid to late 1990's was being absorbed.

As of the 2nd Qtr of 2015, Construction GV as a percentage of GDP now stands slightly higher at 12.24% of GDP - an all time high for the past 25 years.  But the real story is that Cumulative Construction GV has gone well above equilibrium and now stands at 5.2% above equilibrium, a rise of 4.0% in just six months.  Given all the planned new projects that are already at the execution stage, the momentum in Construction Investment will continue.

Great Depression vs. Great Recession: Unemployment - Updated November 2015

The reported unemployment rate during the Great Depression was significantly higher than the reported unemployment rates of the Great Recession.

But are the two rates comparable? Before 1938, children were a significant part of the labor force.  In 1900, children younger than sixteen made up as much as eighteen percent of the labor force.  It was only when the Fair Labor Standards Act of 1938 became law that children younger than sixteen were barred from working in manufacturing and mining but not agriculture.

To make the numbers more comparable, it is better to get the ratio of Employment to the Total Population (which includes children). When we do this, the two measures are not so far apart.  In 1929, the year "0" for the Great Depression, 54.41% of the total population was employed.  By 1933, year "4", only 41.97% of the population was employed. But the rise in employment was dramatic.  Four years later, 47.63% of the population was employed, almost six percentage points higher. The employment momentum only stalled when the tax hikes of 1937 induced another recession in 1938 and new child labor laws barred children from the labor force.  If the momentum had continued, the employment ratio would have recovered in less than five years.

In 2007, the year "0" of the Great Recession, 48.38% of the population was employed.   Four years later, only 44.82% of the population was employed, a drop of less than 4 percentage points.  By November 2015 or four years after the Great Recession bottomed out, only 46.35% of the population is employed, an increase of only 1.53% percentage points.  The growth rate of employment was less than a third that of the Great Depression.  At this rate, it will take five more years before employment recovers to that of Year "0".

Great Depression vs. Great Recession

Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"

Plutonomy and the Evisceration of the Middle Class

Mean, Median, Mode

One of the first things we learn about statistics as kids is the concept of Mean, Median, and Mode, which are different kinds of averages. The "mean" simply means the arithmetic average wherein you add up all the numbers and divide the resulting number by the number of numbers.  The "median" is the middle value in the list of numbers.  The "mode" is the value that occurs most often.  The mean, median, and mode of a set of numbers can be very different from each other.

These differences are illustrated in the Wage Statistics for 2014 released by the Social Security Administration last October 2015.

Wage Statistics 2014
Social Security Administration
Net Compensation Interval (In US $)	Number of Wage Earners	Cumulative Number	Percent of Total	Aggregate Amount	Average Amount
$0.01 — 4,999.99	22,574,440	22,574,440	14.2708	$46,647,919,125.68	$2,066.40
5,000.00 — 9,999.99	13,848,841	36,423,281	23.0255	$102,586,913,092.61	$7,407.62
10,000.00 — 14,999.99	12,329,270	48,752,551	30.8196	$153,566,802,438.45	$12,455.47
15,000.00 — 19,999.99	11,505,776	60,258,327	38.0932	$200,878,198,035.07	$17,458.90
20,000.00 — 24,999.99	10,918,555	71,176,882	44.9955	$245,317,570,246.88	$22,467.95
25,000.00 — 29,999.99	10,192,863	81,369,745	51.4390	$279,865,461,187.05	$27,457.00
30,000.00 — 34,999.99	9,487,840	90,857,585	57.4369	$307,828,947,411.16	$32,444.58
35,000.00 — 39,999.99	8,578,215	99,435,800	62.8597	$321,200,755,103.44	$37,443.78
40,000.00 — 44,999.99	7,553,972	106,989,772	67.6351	$320,563,569,965.15	$42,436.43
45,000.00 — 49,999.99	6,542,882	113,532,654	71.7713	$310,391,706,424.23	$47,439.60
50,000.00 — 54,999.99	5,723,269	119,255,923	75.3893	$300,016,377,448.51	$52,420.46
55,000.00 — 59,999.99	4,846,517	124,102,440	78.4531	$278,354,367,841.41	$57,433.90
60,000.00 — 64,999.99	4,201,232	128,303,672	81.1090	$262,203,932,128.68	$62,411.20
65,000.00 — 69,999.99	3,573,471	131,877,143	83.3680	$240,948,179,180.40	$67,426.93
70,000.00 — 74,999.99	3,094,739	134,971,882	85.3244	$224,145,278,103.36	$72,427.85
75,000.00 — 79,999.99	2,684,481	137,656,363	87.0214	$207,853,372,824.62	$77,427.77
80,000.00 — 84,999.99	2,297,338	139,953,701	88.4737	$189,370,862,869.17	$82,430.56
85,000.00 — 89,999.99	1,975,400	141,929,101	89.7225	$172,719,042,418.70	$87,434.97
90,000.00 — 94,999.99	1,714,370	143,643,471	90.8062	$158,442,931,588.44	$92,420.50
95,000.00 — 99,999.99	1,486,636	145,130,107	91.7460	$144,858,203,365.61	$97,440.26
100,000.00 — 104,999.99	1,309,068	146,439,175	92.5736	$134,083,282,259.67	$102,426.52
105,000.00 — 109,999.99	1,117,128	147,556,303	93.2798	$120,020,513,136.11	$107,436.67
110,000.00 — 114,999.99	977,055	148,533,358	93.8975	$109,855,105,705.14	$112,434.93
115,000.00 — 119,999.99	865,889	149,399,247	94.4448	$101,693,061,676.62	$117,443.53
120,000.00 — 124,999.99	773,339	150,172,586	94.9337	$94,660,281,091.31	$122,404.64
125,000.00 — 129,999.99	673,971	150,846,557	95.3598	$85,886,152,964.93	$127,433.01
130,000.00 — 134,999.99	595,827	151,442,384	95.7364	$78,899,843,713.01	$132,420.73
135,000.00 — 139,999.99	527,341	151,969,725	96.0698	$72,476,546,845.30	$137,437.72
140,000.00 — 144,999.99	466,992	152,436,717	96.3650	$66,519,743,635.12	$142,443.00
145,000.00 — 149,999.99	419,003	152,855,720	96.6299	$61,787,674,520.19	$147,463.56
150,000.00 — 154,999.99	384,581	153,240,301	96.8730	$58,607,775,121.57	$152,393.84
155,000.00 — 159,999.99	335,391	153,575,692	97.0850	$52,801,735,517.69	$157,433.37
160,000.00 — 164,999.99	296,048	153,871,740	97.2722	$48,087,213,596.86	$162,430.46
165,000.00 — 169,999.99	265,309	154,137,049	97.4399	$44,426,198,104.69	$167,450.78
170,000.00 — 174,999.99	239,515	154,376,564	97.5913	$41,304,379,348.95	$172,450.07
175,000.00 — 179,999.99	216,255	154,592,819	97.7280	$38,370,042,895.27	$177,429.62
180,000.00 — 184,999.99	200,592	154,793,411	97.8548	$36,588,064,085.78	$182,400.42
185,000.00 — 189,999.99	179,005	154,972,416	97.9680	$33,554,727,208.93	$187,451.34
190,000.00 — 194,999.99	165,277	155,137,693	98.0725	$31,807,897,759.84	$192,452.05
195,000.00 — 199,999.99	154,070	155,291,763	98.1699	$30,425,466,536.83	$197,478.20
200,000.00 — 249,999.99	1,039,897	156,331,660	98.8273	$230,863,458,226.21	$222,006.08
250,000.00 — 299,999.99	565,105	156,896,765	99.1845	$153,945,762,663.99	$272,419.75
300,000.00 — 349,999.99	333,584	157,230,349	99.3954	$107,708,119,615.81	$322,881.55
350,000.00 — 399,999.99	219,923	157,450,272	99.5344	$82,117,070,706.61	$373,390.10
400,000.00 — 449,999.99	151,162	157,601,434	99.6300	$63,997,346,472.50	$423,369.28
450,000.00 — 499,999.99	108,881	157,710,315	99.6988	$51,583,042,398.64	$473,756.14
500,000.00 — 999,999.99	345,935	158,056,250	99.9175	$230,331,407,862.96	$665,822.79
1,000,000.00 — 1,499,999.99	65,548	158,121,798	99.9589	$78,672,933,288.58	$1,200,233.92
1,500,000.00 — 1,999,999.99	24,140	158,145,938	99.9742	$41,431,838,733.52	$1,716,314.78
2,000,000.00 — 2,499,999.99	12,137	158,158,075	99.9819	$26,997,226,154.27	$2,224,373.91
2,500,000.00 — 2,999,999.99	6,871	158,164,946	99.9862	$18,747,446,313.27	$2,728,488.77
3,000,000.00 — 3,499,999.99	4,799	158,169,745	99.9892	$15,507,304,422.66	$3,231,361.62
3,500,000.00 — 3,999,999.99	3,258	158,173,003	99.9913	$12,166,741,762.34	$3,734,420.43
4,000,000.00 — 4,499,999.99	2,353	158,175,356	99.9928	$9,970,953,222.98	$4,237,549.18
4,500,000.00 — 4,999,999.99	1,822	158,177,178	99.9939	$8,633,941,395.34	$4,738,716.46
5,000,000.00 — 9,999,999.99	6,468	158,183,646	99.9980	$43,887,775,808.42	$6,785,370.41
10,000,000.00 — 19,999,999.99	2,230	158,185,876	99.9994	$30,065,006,121.19	$13,482,065.53
20,000,000.00 — 49,999,999.99	776	158,186,652	99.9999	$22,450,911,983.01	$28,931,587.61
50,000,000.00 and over	134	158,186,786	100.0000	$11,564,829,969.82	$86,304,701.27
	158,186,786			$7,050,259,213,644.55	$44,569.20

Graphically, this data looks like this:

This report took data from 158.2 million wage earners who made an aggregate wage of $7.05 trillion dollars.  The mean wage per wage earner, therefore, was about $44,569.20 for 2014.  Now, what is the median?  The table above shows that 51.439% of the wage earners earned less than $30,000.00 per year.  This is not exactly the median income but it is close enough. The above graph show that around 22,574 million people or 14.27% of the wage earners earned less than $5,000.00 a year in compensation.

What does this all mean?

Simply put, a huge chunk of the population is poor.


 In 2014, there were around 1.27 earners per household:

	No Earners	One Earners	Two Earners	Three Earners	Four or More Earners	Total
Number (thousands)	29,883	45,821	39,162	7,342	2,379	124,587
% of Total	23.99%	36.78%	31.43%	5.89%	1.91%	100.00%

There were also 2.58 members per household.  Under the 2015 Federal Poverty Level Guidelines, a household of three people must earn $20,090.00 or less to qualify for federal cost assistance such as Medicaid, CHIP, and taxes.

Simplified 2015 FPL Guidelines you’ll use for 2016 cost assistance, 2015 Medicaid and CHIP, and taxes filed April 15, 2017
Persons in household	2015 Federal Poverty Level threshold 100% FPL
1	$11,770.00
2	$15,930.00
3	$20,090.00
4	$24,250.00
5	$28,410.00
6	$32,570.00
7	$36,730.00
8	$40,890.00

This means that at least 38.09% of wage earners are qualified for federal assistance.  If the number of people per household is stretched to five, then a staggering 51% of the wage earners can be considered poor enough to qualify for federal assistance.

This information is not new. It was pointed out by several other blogs, most notably by Zerohedge.

These findings are further corroborated by the Credit Suisse Global Wealth Report.  Credit Suisse is a multinational financial services holding company with an extensive Private Banking and Asset Management divisions.  They market their financial services to Ultra High Net Worth Individuals. In other words, it is in their best interest to know who is rich and who isn't in each country they have operations in.

According to Credit Suisse, 50% of US adults are classified as Poor, another 37.70% are classified as Middle Class, and just 12.30% are considered Upper Class in 2015.

The Upper Class own a staggering 79.10% or $67.948 trillion of the country's wealth.  The Middle Class own 16.837 trillion or less than 20% of the nation's wealth.  The Poor? They own a mere $1.117 trillion or a measly 1.30% of the nation's wealth. Got it? Around 50% of US adults own a little over 1% of the country's wealth.

The astounding growth in the wealth of the Upper Class since 2000 has widened the gap between Mean Wealth per Adult and the Median Wealth per Adult.

In 2000, Median Wealth per Adult was 21.11% of Mean Wealth per Adult.  In 2015, that ratio is just 14.10%.

This ratio puts us just below emerging market darlings (or former darlings) such as Brazil (18.82%), India (19.94%), Indonesia (17.88%) and Thailand (17.24%).  We are just above oligarchic Russia (11.84%).

According to Credit Suisse, just 6.40% of the US Adult Population had wealth greater $1 million in 2015.  

But the bulk (86%) of those High Net Worth Individuals or HNWI just had $5 million or less of wealth.  Around 9% of  had $5 million to $10 million in wealth. 

So even among the HNWI who own 75.60% of the country's wealth, the numbers are skewed by the Top 1% of adults, who own 37.30% of the wealth of the entire nation.

Great Depression vs. Great Recession GDP Growth Rates - Updated As of Third Quarter 2015

In March 2015, two illustrious economists, both Former Fed Chairman Ben Bernanke and Former Treasury Secretary Larry Summers have been duking it out on the blogosphere about secular stagnation.  In layman's terms, both are attempting to describe why does the US Recovery from the Great Recession feel so sluggish.

Although the overall collapse in REAL GDP was relatively shallow  (-3.1% from peak to trough in real terms and -0.4% in nominal terms) and took place over two years (2008 to 2009), the recovery in the five years since then has been very anemic.  The economy reached parity with its pre-recession peak GDP in nominal terms in 2010, only three years after the Great Recession started in December 2007.   In real terms, it took an additional year, by 2011, to reach parity with its pre-recession peak.  By 2014, the US economy is only 20.81% larger, in nominal terms, than the bottom in 2009, averaging only 3.85% growth every year since the Great Recession bottomed out. In real terms, the US economy is only 11.56% larger than the bottom in 2009, averaging only 2.21% growth every year since 2009.

The overall economic contraction during the Great Depression was much more severe (-46% in nominal terms and -27% in real terms from peak to trough) and took much longer (four years from 1930 to 1933).  In real terms, economic parity with its pre-depression peak was only reached in 1936, seven years after the start of the Great Depression. Despite the severity and depth of the economic contraction, it only took three years after the 1933 bottom for the US economy to reach parity (in real terms) with pre-depression peak in 1929.  Recovery, in terms of economic growth rates, was a lot more robust, averaging 10.9% annually during this period.  In the four years since the US economy bottomed out in 1933, the US economy was 43.5% larger than the bottom in 1933, averaging 9.44% growth per year every year. In nominal terms, the US economy only recovered its pre-depression peak only sometime in 1941, when WWII spending began in earnest.

Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff: "This Time is Different"


Given this very sluggish recovery with no end in sight, it is no wonder that Ben Bernanke, who is only 60, said that he doesn't expect the price of money (interest rates) to rise in to its long-term average of around 4 percent in his lifetime.

Great Depression vs. Great Recession: Unemployment - Updated July 2015

The reported unemployment rate during the Great Depression was significantly higher than the reported unemployment rates of the Great Recession. 

But are the two rates comparable? Before 1938, children were a significant part of the labor force.  In 1900, children younger than sixteen made up as much as eighteen percent of the labor force.  It was only when the Fair Labor Standards Act of 1938 became law that children younger than sixteen were barred from working in manufacturing and mining but not agriculture.

To make the numbers more comparable, it is better to get the ratio of Employment to the Total Population (which includes children). When we do this, the two measures are not so far apart.  In 1929, the year "0" for the Great Depression, 54.41% of the total population was employed.  By 1933, year "4", only 41.97% of the population was employed. But the rise in employment was dramatic.  Four years later, 47.63% of the population was employed, almost six percentage points higher. The employment momentum only stalled when the tax hikes of 1937 induced another recession in 1938 and new child labor laws barred children from the labor force.  If the momentum had continued, the employment ratio would have recovered in less than five years.



In 2007, the year "0" of the Great Recession, 48.38% of the population was employed.   Four years later, only 44.82% of the population was employed, a drop of less than 4 percentage points.  By July 2015, around four years later, only 46.30% of the population is employed, an increase of only 1.48% percentage points.  The growth rate of employment was less than a third that of the Great Depression.  At this rate, it will take six more years before employment recovers to that of Year "0".

Great Depression vs. Great Recession

Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"

Singapore, Malaysia, and Thailand Post Flat to Declining Housing Prices, Can the Philippines and Indonesia be Not Far Behind? - 1st Qtr 2015

Almost all countries discussed in this blog post, with the exception of Thailand, have been experiencing rapid growth in home prices that have outstripped inflation by a wide margin.  The gap between home prices and their inflation adjusted levels are at the widest ever, particularly in Singapore, Hong Kong, and the Philippines.

Singapore


Singapore's home prices have now been declining for six straight quarters, which, according to Bloomberg, is the longest losing streak in five years.  Home prices are still  77.08% above their year end 2004 levels. Overall prices levels, as measured by inflation have just increased by 30.22% since year end 2004.  In other words, for the past ten years, Singaporean home prices have outpaced inflation by almost 50 percentage points.

Malaysia



Neighboring Malaysia's House Price Index actually topped out at 181.64 in the second quarter of 2014 and has declined to 178.84 as of the first quarter of 2015.  Home prices are 78.84% above their year end 2004 levels.  General price levels are around 50 percentage points lower, at 30.37% above their year end 2004 levels.

Thailand

In Thailand, which has been experiencing political turmoil for some time, home prices have remained essentially flat since the end of 2004. Home Prices ended 2013 with the index at 100.54, just 0.54% higher than the end of 2004, but showing a substantial recovery since the recent low of 74.08 posted in the third quarter of 2009. In the first quarter of 2015, home prices have rebounded to 106.32, or 6.32% higher than its year-end 2004 levels, way below its expected inflation adjusted levels. General Price levels are 34.88% above their year end 2004 levels.

Indonesia

Meanwhile in Indonesia, home prices have showed no signs of slowing down their upward trajectory.  In fact, prices seem to have gone parabolic, climbing 4.63% in the last quarter of 2013, from a base of 121.49 as of the third quarter of 2013 to 127.11 as of year end 2013.  In the first quarter of 2015, home prices have climbed an additional 9.00% to reach 138.57.  Since the first quarter of 2007, home prices have risen 38.54%. Indonesian Home Prices, like Thailand, have lagged inflation since 2007.

Hong Kong

Hong Kong real estate prices have leaped by 234.46% in a little over 10 years to reach a staggering 334.46 as of the first quarter of 2015 from a base of 100 since year-end 2004. General inflation levels have just climbed 36.85% during this same period.  In other words, Hong Kong home prices have outpaced inflation by an astounding 197.61% during this period, the highest rate of appreciation in the countries covered in this post.

Philippines

Philippine house price index stands at 214.79% at the end of the first quarter 2015 or over 114.79% above their year-end 2004 levels.  Philippine home prices, with the exception of Hong Kong, have posted the largest 10 year gains among all the countries considered in this blog post.  Like Singapore and Malaysia, Philippine home prices have outstripped inflation by around fifty-five percentage points.  Like Indonesia and Hong Kong, Philippine home prices have so far no signs of slowing down their upward trajectory for the foreseeable future.   The question is, is this momentum sustainable?  Or will the Philippines and Indonesia follow its ASEAN neighbors, Singapore, Malaysia, and Thailand, in exhibiting plateauing or declining house prices?  That remains to be seen.

Source: Global Property Guide, Trading Economics