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A discussion with Patrick Killelea of - the housing bust and what to expect next

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The housing bubble and subsequent bust has been a mainstay of the financial headlines for the past six years. Most pundits were chirping throughout the bubble - and saying during a good chunk of the bust that housing prices could only continue to rise. There were a few level-headed individuals who did see the housing mania for what it was and some of the names are familiar; there are the big media names such as Robert Shiller and Nouriel Roubini, the blog experts, including; Mike Shedlock and Karl Denninger. There are others, maybe less familiar names, who foresaw the housing bubble and bust that have earned equal billing, including Patrick Killelea - the founder of

I receive the daily newsletter; an excellent resource which highlights housing and economic news stories. I was curious to find out the story behind, so I asked Mr. Killelea if he would be willing to discuss the origins and future of his website with me. He kindly agreed to share the story. I'll refer to Mr. Killelea as Patrick, since that's the name of his website. I sent Patrick some introductory questions and then we expanded on those questions during a phone conversation.

Patrick is a native Midwesterner who moved to CA during the dot-com bubble in 1997. He'sa 43 year old with an engineering degree from U. Michigan. He's a computer programmer and is the author of a book about website performance problems, titled: "Web Performance Tuning," which is in its 2nd edition and available for sale.

I asked Patrick what influenced his decision to start and why he focused on the housing bubble

"I had the domain name since 1995 or so, but didn't do much with it until late 2004, when the bubble was painfully obvious, yet the realtors, the press, the government, and the Fed were all in denial."

While Patrick is not a real estate professional, he's well aware of why the housing bubble took shape and who's to blame for all the hype and misinformation, "I just couldn't stand the quoting of realtors in the press as if they were an objective source of information. They're not, and I wanted to say the things they were not saying."

"I have no background in real estate at all. You don't need a background in real estate to see that houses are overvalued by a factor of two or three in places like the SF Bay Area. Renters are being subsidized in a big way by their landlords. These things became clear because I was surrounded by the real estate bubble."

Although it may be obvious to many, I thought it worthwhile to ask Patrick why people are so taken in by the real estate is the way to riches mentality.

"Because it's money without work. Sounds nice. And it was true as long as salaries and population were rising and interest rates were falling, as they did for many years. But now the US population is mature, and may even decline. Salaries are falling, and there's a big unemployment problem that will take years to clean up. And interest rates have nowhere to go but up."

Patrick also mentioned that everyone has an interest in the home buyer's money. From the real estate agent to the mortgage broker to the bank to the home inspector and appraiser; they all take a piece of the action. And can you expect a real estate agent to give you an honest opinion of the real estate market? When it comes to real estate professionals giving impartial advice about the housing market, we both found a comparison in the saying, "never ask a car salesperson if now's a good time to buy a car." When you're paid by commission, it's ALWAYS a good time to buy! Upton Sinclair's classic quote "It is difficult to get a man to understand something when his salary depends upon his not understanding it" also entered into our real estate bubble discussion.

There are a couple of financial experts that Patrick believes have a handle on the real estate market.

"Dean Baker and Mike Shedlock have lots of intelligent things to say about the real estate market. I link to their sites a lot. Bloomberg is pretty good for objective news. The best source of statistics is the Case-Shiller index."

Patrick is a also fan of G. William Domhoff's "Who Rules America" book; investigations into the factions that hold power in America.

I asked Patrick if he saw the current housing market stabilizing, or is there more pain to come and why?

"It's split, so you're going to see a lot of schizophrenic news. The poorer neighborhoods had a sharp drop in actual sale prices, and in many cases it now makes more sense to own than to rent in those poor areas, because annual rent can be 10% of (the) purchase price there. But in rich areas, there is a lot of pain yet to come. It's going to be a long slow fall like in Japan. Those people can hold out longer, but the same fundamentals will get them in the end. Annual rents are only 2% or 3% in a lot of these places, so it doesn't make sense to buy an expensive house, and the banks are not lending those amounts anyway."

Patrick sees a double-dip housing bust taking shape as the more affluent with large mortgage payments foreclose due to rising unemployment.

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Mike has spent the past two decades as an environmental remediation specialist and technical writing consultant. An Environmental Sciences graduate of SUNY Brockport, Mike has been writing for the past year about unemployment and workplace issues. (more...)
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