Is there a real estate bubble in San Francisco Bay Area?  If "Yes",
when will it burst?

The Bubble if not just in SF but it's all over the US and the UK (and
probably elsewhere).

Nobody knows for sure when it's going to burst but probably shortly
after the Presidential Elections.

Have a Happy Christmas!

There is definitely a slow down in the San Francisco market, in
particular. My buyer's agent, with whom I spoke with tonight, are
seeing trends with her clients selling homes (she's listed 3 homes in
the last 2 weeks) and the number of offers are definitely lower than
the last 2 months.

We will probably see a softening of the market in the next month or
so, as Alan Greenspan prepares to lower interest rates, raising
mortgage rates again. With a 1/4 point increase, rates will push
upwards to around 6.5-6.75% for a 30-year fixed mortgage and, thereby,
making purchase of a property in San Francisco a little tougher.
Median prices are over $500K so if you try to put a 20% downpayment on
it, you're still looking at around 2200-2500/mth mortgage.

That is difficult to answer. For years, the rule was: rent if you
would live less then 5 years in a place and purchase if you will live
there longer. But now, I can not justify paying more than twice for
mortgage compared to rent. On the other hand, the prices keep going
up. Why? Is it because of the inflationary policy of the present
government? Will the bubble burst or are we now a banana country with
inflation and salaries going down?

There's an interesting article on this exact subject in today's San
Francisco Chronicle:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/06/17/BUGND776191.DTL&type=business