Post-Frenzy Coffee Bet

The last coffee bet began in 2006 when it was obvious to me and others that the market bubble was popping, so let’s examine the data back to those years to see if we can learn anything that might be helpful when trying to predict the future:

NSDCC Listings and Sales between January 1st and August 31st:

Number of Listings
Number of Sales
Median Sales Price

The most recent non-pandemic years, 2018 and 2019, were eerily identical, which suggests that the same market conditions can prevail for years in spite of rates (which varied from 4.03% in January, 2018 to 4.87% eleven months later, and then back down to 3.72% in December 2019).

The most stunning data point is how the number of listings has plummeted this year, even though sellers could have sold for all-time high prices. Record pricing used to motivate more people to sell, not fewer!

Agents sitting on unsold properties will ‘refresh’ their listings every month or two, and those days are back so we’ll probably have at least the same amount of 2023 listings just due to the extra 10% to 20% of refreshers. But the inventory is going to be bleak no matter what happens, so that alone will drive the market in 2023 and beyond. Here is a visual:

The thing I remember most from the last downturn was how the market turned earlier than expected. There was a blog post from April, 2009 entitled Coffee Bet 2 where I thought prices would go down another 25%, when that month ended up being the actual trough for the SD Case-Shiller Index.

Even with the buyers who over-analyze and stay on the sidelines for 2-5 years, there will be others – mostly those out-of-towners who don’t have a house here yet – who will buy when they find the right house.

Sales will likely be dreadfully low, and I think NSDCC pricing will be FLAT in 2023.

During the selling seasons, there will be some spectacular sales of those family estates with big yards and pool on culdesacs…..and prices trend higher!  But then as the inventory diminishes over the rest of the year, the pricing either goes flat or we give it all back in the second half of the year – like what happened in 2018 and 2019…and what will probably happen in 2022 too:

Here are NSDCC markers for this year:

January 2022:

Median List Price: $2,219,888

Median Sales price: $2,250,000

August 2022:

Median List Price: $2,200,000

Median Sales Price: $2,150,000

If it weren’t for those crazy three months before rates went up last spring, the 2022 data would probably have already looked fairly flat anyway, so it’s really not risky for me to guess that it will continue. There will be crazy-high sales, and stunningly-low sales too, but in the end, we’ll be living in Plateau City.

In the first coffee bet of 2006, I used the Davidson Starboard tract as a marker, and coincidentally I have a listing there now.  The neighborhood is arguably the best in the area, and La Costa Oaks South homes in general, are among the newest and most desirable homes in SE Carlsbad.

Let’s look up at the end of 2023 and see how the LCOS median sales price compares – even with it being inflated by early-2022 sales.  These closings are from the last six months:

Even if the median sales price deteriorates somewhat in the next 15 months, I predict that my sale will be the lowest Plan 2 sale in the interim, and there won’t be any LCOS sales below $2,000,000 between now and the end of 2023 (the $1.875M sale was FSBO).

The ultra-low number of listings in 2023 will throttle any big price changes in either direction.

My NSDCC pricing guess for 2022 was +/- 5%, and is close, and next year will probably be similar too.

I’m sticking with ZERO change in pricing next year – which isn’t a sexy number but will reflect the general malaise and discomfort among the participants we hope for lower rates but know they won’t change enough to make much difference anyway.

Another Coffee Bet

After mortgage rates went over 6% again yesterday, the doomers will be burying the real estate market over the next few months.  You can see why – rates have been dropping for a generation; for them to now go up from 3% to 6% in a few months is unprecedented for today’s buyers:

But having the majority of buyers paying over the list price (especially those paying $100,000+ over list) was unprecedented too. Those who haven’t bought a house yet must be suffering from real estate whiplash today!

Where is it going to go now?

Is there any sort of precedent to reflect on?  When this blog was in its infancy, I made the now-infamous Grand Poobah of Predictions on September 16, 2006 on how I thought the market was going to unravel.  It was contested by many, and Rob Dawg issued his challenge which evolved into the Coffee Bet.

If you’d like to revisit history, scroll down to the bottom here and read the comments too:

Yesterday, I told Rob that I will post my latest thoughts on Monday, and asked him to do the same –  or at least critique what I had to say.  It will give me a couple of days to think of all the variables – which there are several now that have never been in play before!

Come back next week with your thoughts too!

Collapse Recount


The collapse in U.S. home prices that stoked the worst recession since the Great Depression wasn’t quite as severe as initially estimated, according to data from S&P/Case-Shiller.

Property values nationally fell 26 percent from the February 2007 peak to the December 2011 trough, not 34 percent as previously reported, revised data showed last week. The index will now be issued monthly rather than quarterly.

The change is the result of CoreLogic Inc. (CLGX)’s $6 million purchase of the S&P/Case-Shiller index from technology company Fiserv Inc. in March 2013. Case-Shiller has spent more than a year retrofitting its model with CoreLogic’s bigger, higher-quality data set, leading to a change in how the index looks.

Coffee Bet 2

At last night’s panel discussion the question was asked,

“When will the Case-Shiller index hit bottom?”

Other panelists politely side-stepped the question, so I took the plunge.  My last prediction was the infamous coffee bet from September, 2006, where I guessed that superior properties would hold up better, sliding only 10% in value, and inferior properties would get hammered 40% to 50% in value.  The jury is still out on how far off that prediction will be.

Last night I said that the Case-Shiller index would bottom in December, 2011, and be 25% lower than it is today.

Today’s index is 148.25, about what it was in August, 2002.

Knock 25% off and it’ll be 111.19, or about what it was in February, 2001.

The highest reading was 250.34 in November, 2005, so the 111.19 reflects a 56% decline.

I don’t like making formal predictions, let alone ones off-the-cuff.  What was going through my head in the 2-3 minutes preceding my statement?

Oceanside is the test case.  The market has worked perfectly in Oceanside, and properties in any condition, and in any location, that are priced at 50% to 60% off are flying off the shelf.

Will the rest of San Diego County need to hit 50% off to reach bottom?

I don’t think so, but we’re talking about the Case-Shiller index.

If Oceanside is the example of what to expect elsewhere, then we’ll see a marketplace dominated by bank-involved sales.  Instead of ‘giving their house away’, individual homeowners who are comfortable will find other alternative to selling, and the vast majority of the homes selling will be those that the homeowners can’t afford anymore.

It could cause sales to shrink in older neighborhoods, which could have a stabilizing affect on pricing.  The neighborhoods I mentioned in the coffee bet are holding fairly well, though Davidson’s La Costa Oaks has a couple of short sales in the works.

The index measures the decline between the last two sales prices of the same house.

If the older neighborhoods have fewer sales, then the number of REO and short sales of homes built in 2004-2006 will probably be the determining factor of the Case-Shiller index. The newer McMansions loaded with HOA fees and Mello-Roos are in everybody cross-hairs, and it’s likely that we’ll see further price erosion for the next couple of years.

But the banks are squeezing the REOs out little by little, dragging out the inevitable.  That’ll continue for another 3-4 years at least, but, just like in Oceanside today, there should be over-shoot, so by December 2011 the index might hit bottom.

There are enough buyers patiently waiting for the higher-end homes to drop, and the second half of equasion is how much lower will prices have to go to get them to step up.  I think there is enough enthusiasm, plus the tempting low rates, that many buyers would be buy a home today if they could just find decent ones at 5% to 10% off.  Because the Case-Shiller will be loaded up with bank-involved properties that were purchased in 2004-2006, I think it’ll read worse than it is, but that might be too optimistic.

That’s my justification of a wild guess last night, but who knows?

The Case-Shiller index has been going down 4-5 points per month lately.  It only has to drop 37 points to be 25% less than it is today, so conceivably at this rate we could have a 25% decline in the index by early next year.

I’ll stick with the 25%, when it happens…..?

Here is a youtube of Rich answering the question, “What indicators do you watch?”

More Coffee Bet, 2008

The other two neighborhoods I mentioned as “superior homes” to watch were Davidson’s Starboard tract in La Costa Oaks, and the old beach community, Terramar. How are they doing?

The number of sales have been low, and data scattered in both areas.

Here are the same-house sales in Starboard, listed in chronological order of their resale date, with the only three 2008 sales in bold:

Floor Plan Sales Price, New Resale Price, Date % Diff
Plan One
3,743sf $1.123, 2/05 $1.200, 5/06 +7%
3,743sf $913K, 3/05 $1.130, 7/07 +24%
3,743sf $992K, 4/05 $1.175, 7/07 +18%
3,743sf $997K, 11/05 $1.070, 9/07 +7%
3,743sf $1.008, 4/05 $1.007, 11/07 REO -0-
3,743sf $999K, 12/05 $900K, 6/08 REO -10%
Plan Two
4,000sf $1.025, 12/06 $1.150, 5/07 +12%
4,000sf $983K, 6/05 $1.167, 6/07 +19%
4,000sf $956K, 3/05 $1.200, 7/07 +26%
4,000sf $1.156, 12/05 $1.150, 4/08 -1%
4,216sf $1.065, 9/05 $1.095, 6/08 +3%
Plan Three
4,398sf $1.009, 3/05 $1.165, 10/06 +15%
4,398sf $975K, 4/05 $1.024, 4/07 +5%

The second REO sale had listed for $849,000, and the agent already had the buyer standing by at $900,000 – it went pending the first day, and could have sold for more.

There is an active short-sale listing of a 3,743sf plan, listed on the range $949,000 to $1,049,000, and a PENDING 4,398sf plan, listed for $1,549,000 to $1,649,000.

I think this is going to be typical in the prime areas from now on – lower short-sale or REO listings closing under the trend, interspersed with primo listings going for top dollar. The future sales depend on how many homeowners can’t hang on – about half of them had equity in the 0-20% range.


Terramar has been beating the odds.

In May of this year, there were three different 1,500sf houses sell in the $800,000s on El Arbol and Los Robles, similar to sales in 2005.

There have been two shockers lately too.

The nutty 1,399sf house with a studio over the garage on the non-oceanfront side of Shore Drive closed for $1,600,000 cash to an Arizona buyer. It had sold in 2002 for $750,000.

And the 2,760sf house at 5390 Los Robles closed at $1,225,000 to a buyer from Simi Valley on 9/4/08. I had it listed for $349,000 in 1995 and couldn’t sell it – everyone thought I was crazy. The owner finally did get lucky and sold it for $762,500 in August, 2003.


The fewer sales in both areas help illustrate the difficulty for buyers looking for prime properties – do you keep waiting for lower prices, or take your shot when you have it, because of the few choices available?

Coffee Bet Update 2008

It was September, 2006 that the famous coffee bet took place. 

I had put forth my hypothesis on how the downturn would end up, adding that with my prediction and about $4 you could get a cup of coffee.

Here’s a link for those who’d like to review the hypothesis:

I said that ‘superior homes’ might only lose 5-10% of their value, but inferior homes were likely to get clobbered, losing 40% to 50%, resulting in a combined blended loss of 33% in median home price.

Here was the justification:

Three general reasons the high-quality properties will do better:

1.  They’re older houses, owned by older people, with less debt.

2.  They have it so good, there’s no better place to go.

3.  Buyers are holding out for the good stuff.

Because of these three reasons, the supply-and-demand curve is much more healthy in the high-quality-home market.

I was vilified by most of the commenters, one in particular, the infamous powayseller.  It might have been the impetus for her to finally start her own blog?

Rob Dawg calmly offered, “I’ll buy you that $4 cup of coffee if you can find anything that isn’t off at least 10% from the peak this time next year.”

So I took the challenge, and mentioned three neighborhoods (Terramar, Olde Carlsbad, and La Costa Oaks – Davidson tract) that I thought could beat the odds.  When we reviewed them a year later and put it to a vote, I came out slightly ahead.

Where do we stand now?

Let’s start in Olde Carlsbad – 92008

For those who know Olde Carlsbad, I think you’ll agree that it’s a mixed bag – many older, smaller SFRs interspersed with new or remodeled houses and estates, many with ocean views.  Determining values is always a challenge around 92008, but you decide.

Here are the same-house sales that have closed in 92008 since June, 2008:

1295 Cynthia  3 br/2 ba, 1,400sf YB:1960 short sale

$615,000  10/05    $411,000   9/08    Difference = -33%


2728 Forest Park  4 br/3 ba,  2,248sf  YB:1985  REO

$647,000   6/04     $435,000   8/08   Difference = -33%


1726 Forest Ave  3 br/2 ba, 1,900sf  YB:1962  REO

$545,000   8/04     $535,000   7/08   Difference = -2%

(former owner pulled a $720K loan and did full remodel, then had medical prob)


3255 Monroe  4 br/2 ba, 2,124sf  YB:1964  REO

$700,000    7/05    $575,000   6/08    Difference = -18%


2051 Laurie  4 br/2 ba  1,937sf  YB:1960  flipper

$460,000   2/08    $616,500   7/08    Difference = +34%

(seller/agent did full remodel, probably made $20-40K after costs)


450 Anchor  3 br/2 ba 1,877sf  YB:1982

$655,000   7/06    $650,000    6/08   Difference = -1%

(buyer exchanged into this year’s purchase, paid all-cash)


5111 Delaney  4 br/3 ba,  2,856sf  YB: 2004

$885,000   8/06     $875,000    6/08  Difference = –1%


3912 Garfield   2 br/1 ba, 832sf   YB:1940

$850,000    8/05    $853,000   6/08    Difference = 0



2168 Dickinson  5 br/4.5 ba,  3,043sf  YB:2004

$758,000   5/04      $915,000   9/08  Difference = +21%

(new in 2004)


2178 Twain  5 br/4.5 ba  3,737sf  YB:2004

$727,000  1/04     $1,030,000   6/08   Difference = +42%

(new in 2004)


155 Chinquapin   4 br/4 ba, 2,292 sf   YB:1990

$1,200,000   2/04   $1,225,000  9/08   Difference = +2%


There were 79 sales closed since June 1st, and these eleven purchased since 2004.  The remaining 68 who purchased in 2003 or earlier all sold for more than they paid.

Can I call the results a mixed bag too?

More later on the other two areas in question!

Grand Poobah of Predictions

Admittedly, this prediction and about four bucks will get you a cup of coffee today.  However, if in a few years we look back and I was right, I’ll be happy to take the credit.

From a logical standpoint, there is no way these prices can be sustained – let’s face it, if you want to buy a decent house today you have to spend a million dollars – how many people can REALLY afford that?

But there are intangibles that are hard to assess.  Let’s look at what they are and attempt to assign a value to them, because if we can, we can predict the future.


Let’s use santa monica’s number of 33%.  In the last downturn, most everywhere in Southern California saw prices roll back about 33% between 1990 and 1995.

What about over-shoot?  Aren’t buyers going to be so scared that prices will have to actually go down a little extra, before they have the guts to jump back in?

On June 9th we talked about ‘The Big Split – the Flight to Quality’ (see journal archives).  We’ve seen it happen all year, and I don’t think it’s going to change – that the inferior properties are taking a bath, but the high-quality houses in great locations do a lot better.

Combine the Big Split with over-shoot, and it looks like this:

Inferior properties go down 40% to 50%

Superior properties go down 5% to 10%

Blended rate of decline of median sales price from peak = 33%.

This is where the real estate industrial complex is going to shoot ourselves in the foot – the median sales price will be submarined by the inferior properties.  Where the MSP has been holding artificially high the last 12 months due to fewer sales in general, once the bottom falls out of the inferior homes, the MSP will drop like a rock.

The foreclosures are pouring in right now, and the bulk of them are the inferior properties on the low-end.  The ones that were bought in the last 1-2 years with 100% financing are most susceptible – those homeowners have no skin in the game and are the least likely to find a way to save the house.

If you are a waiter or landscaper, the only way you can handle an additional pop in your monthly payment is if your parents help out, you add a lot of roommates, or you hit the lotto.  True, there will be plenty on the upper-end in trouble too, but they are more likely to find a way out.  People with more affluence have more resources available to them, and if they have a high-quality home, there are more buyers.

It’s all relative, but if this year is a snapshot of things to come, the low-end is going to be hit harder.  That’s in direct contrast to my previous article on Feb 8th called ‘the big squish-down’.  I thought for sure that the million-dollar market would cause all the trouble, but that hasn’t happened so far.

Three general reasons the high-quality properties will do better:

1.  They’re older houses, owned by older people, with less debt

2.  They have it so good, there’s no better place to go

3.  Buyers are holding out for the good stuff.

Because of these three reasons, the supply-and-demand curve is much more healthy in the high-quality-home market.


A.  If there are serious, meaningful changes in loan underwriting and/or elimination of currently available loan programs, then knock off another 10%.  Not very likely in my opinion, but I’m probably in the minority of those reading this.

B.  Major terrorist attack or earthquake, knock off a temporary 10%, but it’ll come back within 1-2 years.  We were back in business within 3-6 months after 9/11.

C.  Complete failure of pension/retirement systems, and healthcare cost.  Even if you have your house paid off, if those two categories go nuts, you could run out of dough and have to sell your house to live.  God help us all if it gets to this point.  It is possible though, so it’s on the board.

Those are the big three negative intangibles, now for the positive:

A.  Interest rates under 6% would help a lot, and I think they’re coming back.  The recent boom was the hottest when rates were the lowest.  It’s both a financial and a psychological benefit that helps get buyers off the fence.

B.  Sales over the next 1-2 years will be determined by buyers who care more about buying the right house than the bubble.  Whether they are ignorant about the bubble, or just don’t care about the bubble, it doesn’t matter.  If the bubble talk doesn’t bother you, then you probably won’t insist on waiting, or driving the price down another 5-10%, before you buy.  Because people need to live somewhere, there are reasons to buy that can supersede money.

C.  Lower prices should help those who rent to be able to buy – both the first-timers and the bubble-sitters.  Especially the bubble-sitters.  I don’t think there are any previous homeowners that don’t want to own, they just don’t want to buy at these prices.

D.  The OpenMLS would help alot.  If it were easier to find good deals, we’d have more sales.  If there were one centralized, super-duper website open to everyone, not only would it be easier to find deals, the novelty alone would spur activity. is an embarassment, and the realtor community deserves to be left behind if we can’t do better than that.

 Those four intangibles could greatly temper any steep decline.

But who cares, all that matters is how you can take advantage, right?


1.  If you know you’re moving in the next couple of years, see if you can move your plans up a bit.

2.  You can’t move your house, but see if you can get it into a higher-quality bracket.  Fix it up nice, that’s what buyers want.

3.  Be more attached to getting out, than getting your price.


1.   Set your goal at getting a high-quality house at 33% under peak prices.  Who are they, and where do I find them?

         A.  Distressed sellers with both high loan balances and equity

         B.   Long-time owners who still think a half-million is a lot of money

         C.   Dumb listing agents you can take advantage of

2.  Stay educated on the market, especially on recent sales.  That education gives you confidence that you’re doing the right thing when making offers.

3.  Be persistent, but patient.  Be prepared to make 100 offers, and hopefully you’ll only have to make 5-10.

4.  Know what you’re looking for, and keep looking!  A good agent can help.

That’s what I think, what do you think?

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