I am back in San Francisco, first time since 2003.  It is amazing how the city has developed over the last couple of years.  The urban revival template that one sees in many major cities around the world is also evident in San Francisco.  The newly renovated Ferry Building downtown is a nice example.  It reminded me of the Chelsea Market in NYC.

My good friend Kerim recently bought a new home in San Francisco.  Since I am currently selling our condo in NY, I am keenly observing the real estate situation.  There are some very scary signs of a bubble (e.g. your cab driver telling you about the investment properties he’s buying, ads in NY Times about real estate investment seminars, etc.)  Remember internet stocks in 2000 anyone?

At the same time, a home has a very different utility curve than Pets.com stock. To start, you can live in it.  You can borrow against it at government subsidized terms.  To counter, Kerim tells me that in the last 70 years, San Francisco real estate has returned an annual 8%, not including rental income.  That rate is also true for the last 10 years.

It will be interesting to see what happens as the interest rates go up.