San Francisco is a city that knows its bubbles. Early this decade it was the land of the dot-com bubble; today, some look at the real estate market and see history about to repeat itself.
"It's possible that prices could fall 50 percent in real terms," said Patrick Killelea, a self-styled real estate guru who's making it his business to burst your bubble. "You could lose half the value if you bought in 2005-2006."
Killelea said that he doesn't just believe it's a bad time to buy, he believes that "a house is rarely a good investment."
But what does he say to the conventional wisdom that over the long term, real estate has proved itself a good investment?
"That is actually not true at all, and there are a lot of statistics to back this up that I can point you to," he replied.
Killelea said he does have the numbers to back up his claim that the stock market is a better place to put your money than the real estate market. From his nerve center inside a house he rents, Killelea merrily crunches all kinds of numbers: average appreciation rates, taxes, maintenance costs and real estate fees, to reach his conclusion that it is most often smarter to rent than buy.
"You can rent a million dollars for 6 percent," Killelea said, referring to the interest on a mortgage. "That's what someone will charge you in interest to take a million-dollar loan. But you can rent a million-dollar house for 2 percent or maybe 2.5 percent. So why wouldn't you take the house? My landlord is effectively subsidizing me a in a big way."
But Killelea's not a realtor, a real estate investor or even an economist. He's a computer programmer who's never made a single housing transaction.
"I'm a blogger," Killelea said. "A bubble blogger in particular. That is a subspecies. … People shouldn't be taking my word for anything. They should do the math themselves."
Type "housing market" into Google and Killelea's "bubble blog," frequented by more than 14,000 regulars every day, will be the first thing you'll see. Perhaps his biggest contradiction is that Killelea is an extremely nice guy, but he just can't help getting into arguments.
While walking around the streets of Berkeley with Killelea, we ran into Kerry McAllister, a real estate agent who owns a house there and said it has been "a fabulous investment." Killelea's response?
"Well, did salaries go up 10-12 percent a year?" he asked McAllister.
"No," McAllister replied.
"That's my problem," said Killelea, "that the fundamentals don't support the prices. So maybe you won. But maybe you were just lucky. And maybe it is a very unusual situation that is reversing."
Let's just say in the end, they agreed to disagree.
We were in the neighborhood because Berkeley was the birthplace of Killelea's alter ego. In 1999, he tried to buy a house there but ended up outbid, angry and convinced the system is fixed and that real estate agents are dishonest.
"When you start to see what they're doing, they're really trying to manipulate the psychology of the buyer," he said. "They're trying to play on emotions -- fear, greed, maybe it will go up."