Plunging Prices Shock Sherman Oaks

What a difference a season makes!

I was stunned to compare DataQuick’s sales stats for April 2008 against January 2008 in Sherman Oaks’ side-by-side zip codes 91403 and 91423. 

In January just 17 SFR sales were recorded in both zip codes combined.  Not surprisingly, the spring season defrosted sales a few degrees; they doubled in April to 38 – still a dismal number compared to recent years.

But the median price changes are the eye-opener:

Zip Code                                91403              91423    

January Median Price           $1,199,000        $1,025,000        
April Median Price                $   784,000        $  840,000
Change                             - $   415,000      – $  185,000

% Change                           - 34%                 - 18%

That’s more than a one-third price drop in Sherman Oaks 91403 in three months!  I’d be skeptical of such a jaw-dropping change in an upscale area if there weren’t enough data points to give the numbers credibility, but based on 18 SFR sales in April, it would seem statistically valid. 

Furthermore, DataQuick shows the April median price in 91403 lost 16% year-over-year.  91423′s median price was basically flat YOY, but dropped 18% between January and April this year.  This rapid movement down is consistent with statistics showing an accelerating rate of price declines (The Economist likens it to “dropping a brick.”)

There are mitigating explanations for the severity of these price declines.  Tightened standards in the credit market may be stifling lending in the jumbo category, so that a higher proportion of lower-priced homes gets approved for loans, pushing the median price down.  But when homes fail to sell at a given price, it doesn’t matter whether it’s because buyers won’t buy, or because they can’t.  The damage is done, the downward pressure weighs on prices.  The market declines.  Overly relaxed lending enabled prices to soar unrealistically in the bubble years; restricted lending can bring them back to earth.

Now look at Redfin’s stats for the same Sherman Oaks zips. 

Redfin calculates the current median list price for a SFR in 91403 at $1,149,000 – just under the actual median sales price in January.  But the median price of SFR’s sold in the last three months is just $791,000, according to Redfin – supporting DataQuick’s April sales median.

That’s a big, wide gulf between sellers’ wishing prices and recorded sales prices - $358,000 to be exact.  And it’s a gulf that’s widened dramatically in just three months.  The tremendous gap between “asking” and “getting” prices is similar in 91423.   (Compare this with the negligible 2% difference between asking and selling prices in Sherman Oaks-adjacent Lake Balboa.)

Even for a bubblehead who believes prices must continue to fall to restore affordability, that’s a dizzying change in such a short time.  For sellers who are merely three months out of date with pricing realities, it must be all but incomprehensible.