WASHINGTON -- A growing percentage of US housing markets are ``extremely overvalued" and are at risk of falling prices, according to a study based on government data released yesterday by Global Insight and National City.
In the first quarter, 71 housing markets, representing 39 percent of all US 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. The correction usually takes 3 1/2 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.
California and Florida accounted for 17 of the top 20 overvalued markets, economists at the two firms said.
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, and New Orleans by 12 percent.