If the rich get richer and the poor get poorer, you can’t prove it by the home values in Granite Bay, which have fallen along with home values everywhere else in the local area.  One might say the rich get poorer more slowly.

Sales in Granite Bay have increased in recent months, but August was the exception to this rule.  Only 25 homes sold in Granite Bay in August, down 26.5% from last August’s volume of 34 units.  Sold price per square foot has dropped 21.2% during this time, from $287.31 in August of 2007 to an average of $226.37 in August of 2008.  Coupled with this year’s home being 11.5% smaller and now being only a measly 3,070 square feet on average, the average sale price fell 30.3% from year to year, from $996,500 in August of 2007 to $695,015 in August of 2008.  The median selling price of a home in Granite Bay fell 29.2% over the year, from $840,000 in August of 2007 to $595,000 in August of 2008.

Almost a third of the homes that sold in Granite Bay in August were bank foreclosures, with eight foreclosures selling out of 25 total sales.  No short sales closed in August, so the remaining 68% of all homes that closed were non-distressed sales.

5.6% of the homes currently listed in Granite Bay are bank foreclosures, and another 9.1% of all listings are short sales.

As I’ve reported several times in the Sacramento County market, the flip side of falling prices is that more buyers start to get interested in purchasing a home.  In fact, basic economics — meaning the kind of economics I can understand — predicts this.  The law of demand and common sense tells us that if prices go up and nothing else changes, the number of purchases of a given commodity will go down.  Conversely, as prices go down, the number of purchases goes up.

Of course, the fit of unit sales to price is not perfect.  As you can see in chart below, some of the demand is seasonal.  In 2007, for example, volume rose steadily from January to July, but started to fall in August.  In 2008, however, we can see that not only was seasonal demand higher than in 2007 (217 homes selling in January of 2008 versus 161 homes sold in January of 2007), but also that the downturn in demand that happened in July of 2007 has not happened yet through August of 2008.  We may see that peak turn down in September.  We’ve already hit a peak for the year in Sacramento County.

On average so far this year, in each month we sold 28.7% more homes than at the same time last year.  Of course at the same time the average year on year decline in value each month was about 22.9%, and in August sold price per square foot was 26% from last year.

The graph below shows the sales (all sales reported through the Metrolist MLS) of single-unit residential homes (single family homes, condos, halfplexes, etc), in Placer County since June of 2006, the first month for which I’ve imported data from Metrolist.

Here’s the data the chart is based on:

One of the ways that the $700 Billion Wall Street bailout is being shoved down the public’s throat this week is with the threat that if the government doesn’t spend $700 Billion on illiquid mortgage assets, the hedge funds and banks and whoever that own all this bad mortgage paper will stop making home loans, and everything will get worse.  Another premise that people are defending is that Paulson’s dumb idea is the best idea that we could come up with.

I really doubt that this is the best idea we could come up with.  I know because I have an idea that’s hugely dumb, and yet it’s better than Paulson’s dumb idea.  I’m sure if you took about twenty bank presidents and stuck them in a room with coffee and Danish for about four hours you could even get a better plan than mine, but meantime, let’s look at my plan.

First, let’s set out our assumptions and goals:

• The government’s going to give us $700 Billion to play with.  They’ll sell treasuries or raise taxes or whatever they need to do.
• We’ll need 10% of the total sum to administer the program.
• Our goals are:
  • Support home lending as much as possible — i.e., prevent a “freeze up” of credit.
  • Minimize risk to the taxpayer.
  • Reward people and institutions who made good choices, and not reward people who didn’t.

Johnnie’s First National Bank

Here we go, ready?

Take $700 Billion Dollars, and deposit it in a Federally run bank.  You don’t have to call it Johnnie’s First National Bank, but that’s what I’ll call it for the sake of simplicity (and narcissism).

In fact, we already have a Federal Reserve, and they have a whole bunch of districts and banks all ready to go.  This is going to be easy!

We’re going to make some home loans.  To make sure we have enough money to pay our $700 billion depositor (the American people) back, we’re going to have a reasonable reserve requirement of five to one — five dollars loaned for every one dollar of deposits.  Since we wanted to have 10% to administer the program, we can loan up to $630 Billion times five, or $3.15 Trillion in home loans.  (To leverage our $630 Billion, we will sell government guaranteed Certificates of Deposit at 3%).

Most of these loans are not going to default, even though we’re going to have high loan to value.  (We need the high loan to value because nobody has any money because the government shipped all our jobs overseas — I’ll have to solve that problem later).  Meantime, borrowers who choose to participate in the program agree that if they default, they have to pay back 20% of the loan amount as a tax lien.  We have the IRS to enforce that.  Also the government will foreclose like any bank would to recover some of its investment.

To further reduce the risk on these loans, we’re going to limit participation in the program to people who have a credit score of 700 or above.  That means about 58% of Americans will be eligible to participate, and it will be the 58% who have the best credit.  I don’t know the exact historical default rate for this group, but I estimate it should be about 3% or so over the life of the loan.  We’re loaning at, oh, I don’t know, 6% per year, and let’s say conservatively we have a .5% yearly default rate, half of which we can recover through tax liens and home sales.

How Many Loans Did We Make?

The average home in America currently sells for about $245,000.  Assuming we made all our loans in one year, we helped almost 13 million people buy homes.  (More precisely, the number comes out to 12,857,143 home loans).  So roughly speaking, we’re able to finance about 20% of all home sales in the United States in a year this way.  Moreover — hooray for us — we picked the top 58% of all borrowers!  (Compare the Paulson plan, which by definition targets the crappy mortgage backed securities that banks don’t want).

How Did We As Taxpayers Do In Our New Socialized Lending Business?

The math gets a bit tricky, and I’m not a banker, but let’s see if we can get a rough idea:

To turn our $700 billion in treasuries into $3.15 trillion in loans, we sold CDs at 3%.  On the lending side, we made 6%, so that works out to 3% net.  However, .5% of the loans defaulted, and we only got half that money back, so our real earnings were 3% minus .25%, or 2.75%.  At 2.75%, our $3.15 trillion made us about $86.6 Billion per year, meaning we can pay the taxpayers back their initial outlay of $700 billion in just a little bit over eight years.

After that it’s all profit.  See, banking’s not a bad business if you do it right.

Did We Meet Our Goals?

We made about 13 million loans.  Not bad.  That ought to keep things going and make up for the banks that folded.  We rewarded people who made the good choices (those who that kept their credit good enough to participate).   If you don’t have a good credit rating, you’ll need to clean that up, but once you do you can participate in the program.  If you’re a bank and you fold, oh well, it sucks to be you, but other banks who were smart enough to make reasonable choices and are now competing with us are doing OK.  The newly formed Johnnie’s First National Bank is turning a handy profit.  I think once the American people learn they’re making $86.6 Billion per year on their investment, chances are pretty good they’ll vote to extend the program.

I don’t know how much you’re following the news of the bailout of wall street banks who repackaged bad loans, but if you’re not, now is a great time to get involved and please, please call your elected representative and tell everyone you can about this incredible fiasco.

Hank Paulson, Secretary of the Treasury, and George Bush are asking Congress for the authority to spend up to $700 billion at a time (that’s a balance sheet maximum, not a maximum on the total the government can spend).  That’s more than the total cost of the War in Iraq so far.  The Treasury will spend it buying bad loans, and get no equity stake in the firms they’re buying them from — leading some to call it “cash for trash”.

Section eight of the proposed legislation gives Paulson an oversight-free blank check as to how to spend that much of your money.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

You can read the full text here.

Although as you might expect, public opposition to the plan is strongest among Democrats, several prominent conservatives have also gone on record as being opposed to the plan.  This legislation is so bad that even CNN gets it.

Please look up and either write to or phone your Senator and House Representative right away.  You can learn more about the proposal by clicking through on the articles current on Digg for Business and Finance.

Congress is in a HUGE RUSH to get this done, so those of us who think it’s expensive, ill conceived and leaves us stuck holding the bill need to MOVE NOW to express our concerns to Congress.

UPDATE:

Here is the latest draft the bill, which I must admit I think is substantially better than Paulson’s original proposal.  I wouldn’t go so far as to say this makes me for the bill, but at least it’s moving in the right direction.

I’ve been working on a report showing price changes by area in Placer County so you can see which areas are retaining their values better / worse than others.

One thing I do have to add to the chart, however, is some detail about how many units are selling.  Without that data, you can get into some pretty interesting — and wrong — conclusions.  For example, is Applegate really booming?   Well, it sure looks like it, until you realize that in each month shown (August of ‘07 and August of ‘08), exactly one home sold in Applegate, so the numbers are about as statistically in-significant as they can be.

Be that as it may, you can check out how your areas have done here in a rough way, and we’ll have an improved version of this information going forward.

Placer County Area By Area Price Changes

Overall in Placer County in August, sale of homes in all single-unit residential categories (single families, condos, halfplexes, etc.) were up 28.7% over last year, with 449 homes selling in August of 2008 compared to 349 in August of 2007.  August’s total was also higher than the running total for the last six months, of 404 units.

Of homes that sold in August, 193 (43%) were bank owned foreclosures, and 45 (10%) were short sales.  The remaining 47% were non-distressed sales.

The average selling price for a home in August was $369,127, down 28.6% from last August’s average of $516,782.  With the average size also declining slightly, sold price per square foot fell 25.8%, from $231.16 in August of 2007 to $171.42.  (This August’s average sized home was 2,153 in Placer County.)  The median selling price fell 21.7% from year to year, from $415,000 in August of 2007 to $325,000 in August of 2008.

Like Sacramento County, the last few months have seen healthy increases in demand.  Unlike Sacramento County, however, where unit sales finally cooled in August after several months of increases, in Placer County, sales continued to climb in August for the seventh month in a row.

There are currently 6.3 months of inventory in Placer County if you use the absorption rate of the last six months (404 homes per month).  More conservatively, using the last 12 months absorption rate of 330 homes per month, there are 7.7 months of inventory, with 2,530 units for sale.  Of homes for sale now, about 11.6% are bank foreclosures short sales, 30.6% are short sales, and 57.9% are non-distressed sales.

Fortunately, only .1% of all sales are rounding errors!

Sales have been up in Lincoln in recent months, with a large number of foreclosures selling (though fewer than I would have predicted).  In August, 85 homes sold in Lincoln, up 54.5% from last August’s volume of 55 homes.

Being further out than Roseville, Granite Bay, and the like, Lincoln is one of Placer County’s bargain addresses.  The average sold price per square foot was $146.35 in August, down 32% from last August’s average of $215.16.  (Compare Placer County as a whole, with an average of $171.42 per square foot in August, down 25.8% from last year).

At $307,000, the median home selling price in Lincoln Lincoln is down 24.2% from last year’s median of $405,000.  The average price of a home in Lincoln in August was $327,935, down 29.5% from last year’s average selling price of $464,970.

With 50.6% of sales in August being bank foreclosures, Lincoln’s foreclosure sales have outpaced the Placer County average of 43%.

Roseville’s sales volume continued to be strong in August, with low inventory.  However, prices continued to fall compared to last year.  Based on data available as of September 3, 182 homes sold in August, up 34.8% from the 135 homes that sold in Roseville in August of 2007.  This August, 41.8% of all homes that sold were non-distressed sales, with 47.3% of sales being bank owned foreclosures and only 11% of sales being short sales.

The average home sold for $341,138 in August, down 20.2% from last August’s average of $422,603.  However, with this year’s average home being slightly larger than last (2081 square feet, on average, versus an average in 2007 of 2004 square feet), sold price per square foot fell a bit more sharply, 22.3%, from August to August.  Thus the average sold price per square foot this August was $163.90, versus $210.86 last August.

Inventory levels in Roseville have reaped the benefits of the increase in demand of the last several months.  Even using the absorption rate of the last twelve months, inventory is a comfortably low 5.3 months overall.  Non-distressed sales are even lower at 4.5 months of inventory.

Fair Oaks homes declined in value over the last year, but not as rapidly as in the rest of Sacramento County.  The average Fair Oaks home sold in July for $174.22, down 21.9% from last year’s average of $222.96.  At the same time, this year’s average home was smaller than last, so the drop in average sale price was greater, 35.4%, with the average home this July selling for $307,838 versus $476,462 last July. 

Demand in Fair Oaks was stronger this year than last, with unit sales increasing 70.4% from 27 units selling in 2007 to 46 units in July of 2008.  Of these 46 units, twenty-two were non-distressed sales (47.8%), 5 (10.9%) were short sales, and 19 (41.3%) were bank foreclosures.  Fair Oaks inventory is slightly higher than the county-wide average, with 5.8 months in inventory at present.