Overvalued Housing Markets in Decline

Based on a report from financial holding company, National City Corp., along an analysis from Global Insight, indicated that there were fewer overvalued U.S. housing markets in the third quarter - however, 38% of the top 299 metropolitan markets remain at risk of a price correction.

“Whether the most extremely overvalued markets will have an orderly price correction to more normal, historic levels remains to be seen,” said Richard DeKaser, chief economist at National City Corp.

U.S. home prices have been surging for five years, up more than 55% on average over the period, according to recent government data. Some economists fear the priciest markets are overheated and on the verge of a correction that could hurt the economy.

Florida home loan market still going strong

According to Friday’s report, homes in Massachusetts are returning to more normal valuations while Florida markets are still red hot. This was written about earlier in a piece focusing on the Daytona Beach housing market.

Naples remained the most overvalued U.S. market with an 84% difference in average market price and fair price on a home, according to the study. Home market values in Naples averaged $335,183 in the third quarter, up from $329,970 in the second quarter and an estimated fair value of $182,141.

But in Boston, a city seen by some economists as overvalued, the difference between average market price and fair price declined to 18% in the third quarter, down from 23.1% in the second quarter. The report said housing markets outside of the “frothiest” areas, such as along the coasts, showed signs of cooling.

Four cities were added to the list of extremely overvalued markets:

1. Honolulu
2. Phoenix
3. Orlando
4. Pensacola

The report said 41 of the significantly overvalued metro housing markets were located in California and Florida, with most of the rest near New York City, Boston and Washington, D.C.

“The slower pace of price appreciation, in combination with more recent evidence since the third quarter, suggests that a return to normal valuations lies ahead,” said Philip Hopkins, managing director of U.S. regional services at Global Insight.

Despite the conditions around the nation, it should be comforting to note that the Florida housing market and its rates are still hotter than most areas.