WASHINGTON — A growing percentage of U.S. housing markets are “extremely overvalued” and are at risk of falling prices, according to a study based on government data released Monday by Global Insight and National City Corp.
In the first quarter, 71 housing markets, representing 39 percent of all U.S. housing, were deemed to be “extremely overvalued” based on median sales prices, median income, population and historic values.
That’s up from 64 markets accounting for 36 percent of housing in the fourth quarter. In the first quarter of 2004, just 1 percent of housing was considered overvalued. To be “extremely overvalued,” homes had to be valued at least 34 percent more than “normal.”
When prices do fall from overvalued levels, they typically fall by about half the overvaluation, said Richard DeKaser, chief economist for National City, a Cleveland-based bank-holding company. The correction usually takes three and a half years.
The study used the most recent sales-price data from the Office of Federal Housing Enterprise Oversight, which showed that single-family housing prices increased at a 7.3 percent annual rate in the first quarter, the slowest price gains since 2003.
“Price appreciation is slowing but it continues at a historically high rate, boosted by especially strong increases in already overvalued markets,” DeKaser said. The most overvalued markets continue to have the highest price appreciation, he said.
California and Florida accounted for 17 of the top 20 overvalued markets, economists at the two firms said.
Homes in Naples, Fla., were deemed to be 102 percent overvalued, the economists said. Other highly overvalued markets included Salinas, Calif.; Port St. Lucie, Fla.; Merced, Calif.; Bend, Ore.; Stockton, Calif.; Punta Gorda, Fla.; Santa Barbara, Calif.; Madera, Calif.; and Riverside, Calif.
Among other big cities, Miami was overvalued by 64 percent, Los Angeles by 61 percent, Oakland by 47 percent, San Jose by 44 percent, Nassau and Suffolk counties in New York by 44 percent, and Phoenix by 43 percent.
Not all markets were overvalued. Of 317 markets, 88 were deemed to be undervalued. College Station, Texas, was undervalued by about 24 percent. Among big cities, Dallas and Fort Worth were undervalued by 19 percent, Houston by 16 percent, New Orleans by 12 percent and San Antonio by 11 percent.
The number of undervalued markets has been steadily declining, DeKaser said.