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Tuesday, May 3, 2005

Dumbest Thing I've Heard in a While

"The consumers are smart, and they're discerning, and I think there are consumers in Portland, Oregon, who would pay $1,000 a square foot for the right penthouse," said Kathy MacNaughton, a broker with Realty Trust Group Inc.

Sure. Move to Portland, Oregon and pay $3 million to live in an apartment building. There's your smart consumer.

Comments (19)

Are you saying that the penthouse value won't appreciate? Or are you saying you, as an individual, are anti-apartment?

Consumers have a variety of preferences. I definitely would go for the free-standing house, but hey, the apartment has no lawn to take care of, has neighbors, and often has amenities in the building or in walking distance.

Hey, there's a sucker born every minute.

HAha seriously- but I guess with the booming economy the market in Portland will devour such a great deal!

But wait- maybe there'll be a big fat tax abatetment on that penthouse, which does make it somewhat of a better deal.

whoops pardon my typo. abatetment- sounds kind of French, doesn't it?

The $3 million penthouse is an aberration.

The real question is whether someone with $500,000 to $1,000,000 to spend will spend it on:

A - A 1,000-2,000 square foot Pearl District Loft;'

B - A 5,000 square foot new faux-colonial single family residence in West Linn, Forest Heights or Happy Valley

C - A fancy older house in Irvington, Alameda, Laurelhurst, Ladd's Addition, Portland Heights etc.

Personally, my ranking would be "B", followed by "A", and "C" dead last.

But I don't think anyone should be called a "sucker" for not making the same choice our host would make in this situation.

Yikes! Preview is my friend!

I would choose "C" - the house in Alameda first, and "B" - the house in West Linn last.

Whew! That was close ...

I like the idea of ghettoizing the wealthy into condo towers. At least they won't be sucking up land and resources with their McMansions built far, far away from where they work.

Ken Lay was not lying when he thought Enron stock was a good buy. Real value and speculative value are two different things.

Measure 5 prohibits the tax man from lowering assessment values so the local government is fully on board for trumpeting speculation.

Banks get to keep real estate on the books at the value of the sale price, notwithstanding the fleeting factors such as Adjustable Rate Mortgages and such, and reliance on a very accommodative Federal Reserve.

The pace of appreciation in San Diego just dropped below 20 per cent annually; to 18 percent . . . so maybe a penthouse in Portland might suffer a similar reduction in the pace of appreciation.

The real suckers are those folks who do not fix the federal bank insurance scheme that allows investors (a single depositor) to obtain 100,000 dollar account insurance at each of 9,800 institutions. Cumulative insurance on nearly ONE BILLION dollars. The deposit brokers that fed the Silvarado's of the S&L hay day have done their homework, and honed their skills.

A google find: The Bush family and the S&L Scandal

and here is a just cute presentation of the BCCI/Bank of America diddy. The good old Bank of America strolled into Oregon on the backs of a federal takeover of a local institution, with the guarantee on the assets of that institution. The overnight takeovers, with government sponsorship, could not have been more cost effective to taxpayers than liquidation had it not been for the account insurance absurdity noted above.

Prepare yourself for another round of bank consolidation, on the taxpayers dime, at least those middle class folks who still have to pay.

The strategist who designed all the pieces of the puzzle, that is the incentives to make this whole system function, surely deserves an award. The middle class folks get to fight to get into debt to add assets (mortgage documents) to someone else's holdings and then get to be taxed to guarantee the so-called capitalist risk of these other folks.

The only thing I can't predict is the precise timing of the eventual street riots by old folks with no money.

It is in the best interest of local folks to halt the uncontrolled spiral of home prices in Oregon, and Portland, but it takes too much darned work to fully explain why. The Oregonian gave me not an inch of room to whine to the masses when I got all wrapped up in dissecting S&L crap when I should have been focusing on preparing for a legal career. I do not think they would be any more accommodative today either.

Jack, thanks for the post and the opportunity to at least comment! I would much rather get back to topics of this nature than my fleeting distraction on PERS bonds and such and the naive folks at the State Treasurer's office. Shall we all shoot ourselves in the foot, and smile while we do it thinking that we are both rich and smart?

Hilsy -- you get to pay for it one way or another.

Transcript from last weekend's Berkshire Hathaway shareholder meeting:

Warren Buffett: "A lot of the psychological well being of the American public comes from how well they've done with their house over the years. If indeed there's been a bubble, and it's pricked at some point, the net effect on Berkshire might well be positive [because the company's financial strength would allow it to buy real-estate-related businesses at bargain prices]....

"Certainly at the high end of the real estate market in some areas, you've seen extraordinary movement.... People go crazy in economics periodically, in all kinds of ways. Residential housing has different behavioral characteristics, simply because people live there. But when you get prices increasing faster than the underlying costs, sometimes there can be pretty serious consequences."

Charles Munger: "You have a real asset-price bubble in places like parts of California and the suburbs of Washington, D.C."

Buffett: "I recently sold a house in Laguna for $3.5 million. It was on about 2,000 square feet of land, maybe a twentieth of an acre, and the house might cost about $500,000 if you wanted to replace it. So the land sold for something like $60 million an acre."

Munger: "I know someone who lives next door to what you would actually call a fairly modest house that just sold for $17 million. There are some very extreme housing price bubbles going on."


Wonder what the value of the building and land are for a condo in the Pearl or South Waterfront. Can we get close to $60 million an acre? Good times.

Thank God, Gordo. I was about to throw up. Faux Colonial in West Linn or Happy Valley. Yuck!.

Hey! *pout*. I would live in Happy Valley if I had the money...it's quiet and pretty.

...it's quiet and pretty.

Much like me.

"Shall we all shoot ourselves in the foot, and smile while we do it thinking that we are both rich and smart?"

Hey, it worked for Albania, right?

"Much like me."

Someone is supposed to say, "One outta two ain't bad" ... ain't they? :=)


You took the words out of my mouth. They can jack (the verb...not you jack) the price up all they want on their pet projects. If they don't move in reality then they can ad all kinds of abatements and other incentives to make up for the inflated value.

Just a slightly different twist on the Potempkin village scheme.

Aren't abatements supposed to encourage development of brownfields or places with urban blight? Are they really meant to subsidize $3M penthouses? Now that the pearl is hip, and property values have skyrocketed, abatements are unnecessary.

Lily, I think the "abatetment" is a french pastry from Pearl Bakery. I love the apricot ones. Kinda spendy at 25 bucks each. ;)

Thank you, Gordo, for the hearty chuckle. A fancy house in Portland Heights for $500,000! I love it - where can I find one of those?? Try about $800,000 to 2-3 million for the nice homes, even on the east side. You can't get a decent fixer-upper in the NW Heights, for example, for less than 650 these days.

I remember when I was growing up in Portland and you knew someone was really wealthy if you heard their house cost $150,000. Ahh, the salad days.

"Instead, it was the Asset Economy that enabled consumers and businesses to draw on the pixie dust of a new source of purchasing power -- asset appreciation -- as a means to augment what has since turned into a stunning shortfall of organic domestic income generation."

From Stephen Roach at Morgan Stanley

Is asset inflation the same thing as wage deflation by another name? If Alan wanted to stimulate consumption all he had to do was drop money from the upper stories of the tallest buildings of the larger cities and it would have been far more equitable than what we have today. Should the pixie dust of home values and the stock bubble prices be renamed from "assets" to just another component of the "money supply?" M4, perhaps, and thus provide evidence of a rather large devaluation of our currency that has not yet been fully realized in the international exchange rate?

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