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."
He decided not to buy and thinks he ended up on top, even though the house has gone up nearly a half million dollars. Killelea said that even people whose homes increased in value by hundreds of thousands of dollars "would have done better in the stock market."
But even an anti-home owner can live in a house divided. Killelea's wife, Leah, isn't 100 percent behind his philosophy, he admitted. "She is a little embarrassed that we don't own, and it's a very rich neighborhood we're in," he said.
Leah said, "It's a little difficult," but she stands by her husband. "I guess most people in this neighborhood own, so it makes for some tension when we say, 'That is not the way we chose to go; we didn't think that was wise,'" she said.
Killelea's blog, Patrick.net, is a portal of housing pessimism. He links to news headlines that bolster his point that the housing market is beyond bad -- it's real estate Armageddon out there.
"Usually the positive news comes from people who are trying to take your money," he said.
The world of bubble bloggers comes complete with its own language. You're not a "homeowner," you're a "home-debtor." That's one of Killelea's favorites. So is "sheeple," which he explains as "a combination between sheep and people. People who act like sheep and just go in a herd."
Bubble bloggers might consider Tony Fong and his wife, Melissa, to be sheeples. They recently visited an open house, looking to buy their first home.
"I don't think you can really time the market and know when the peak is or the valley is, but I think right now we're in a position where we can go ahead and make a purchase," said Melissa. . "We'd like to live in San Francisco, but who knows? We think it is a good time," said Tony.
Who knows indeed?
Ken Rosen, a professor and chairman of the Fisher Center for Real Estate at the University of California at Berkeley, said Killelea's math is wrong. "The advice not to buy a house is very bad advice."
He believes real estate has benefits over stocks in the long term, and said that "comparing the appreciation rate of housing with the appreciation rate of stocks is not the right way to analyze an investment." He said that advantages of real estate investments include low down payments that mean "your equity multiplies very rapidly compared to stocks."
But in an industry with few impartial voices, Killelea and his fellow bloggers seem to fill a void. Sandy Glick and her family desperately need more space, but she said they held off buying a home after coming across Killelea's site.
"I think it was better that he wasn't in the real estate industry, then he is not biased, so it made it much more believable," she said. "Most of my friends think that what Patrick says makes sense and many of my friends are in the same boat. They are also waiting to buy a home. They want to settle down and buy, but they also believe that prices are out of control."
Killelea said he does feel somewhat vindicated that the market is now reflecting a philosophy he's been espousing for years.
"That is what keeps me doing it," he said. "I used to be crazy, according to people who wrote in. I haven't changed, and I'm no longer crazy. So that means the market has changed."
But it hasn't changed enough to make Killelea a buyer. He'll set down his home-owning roots, he said, when prices drop by half and he can be a home-owner, not a home-debtor.