Overvalued housing markets decline
Study: Home values in Massachusetts returning to more normal levels; Florida market still red hot.
December 9, 2005: 3:02 PM EST
WASHINGTON (Reuters) - There were fewer overvalued U.S. housing markets in the third quarter, but 38 percent of the top 299 metropolitan markets remain at risk of a price correction, a study released Friday showed.
The report from financial holding company National City Corp. and economic analysis firm Global Insight said the number of "extremely overvalued" markets declined to 65 in the third quarter from 67 in the second quarter.
"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., in a statement accompanying the study.
U.S. home prices have been surging for five years, up more than 55 percent 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.
According to Friday's report, homes in Massachusetts are returning to more normal valuations while Florida markets are still red hot.
Naples, Florida, remained the most overvalued U.S. market with an 84 percent 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 percent in the third quarter from 23.1 percent in the second quarter, the study showed.
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 -- Honolulu, Phoenix, Orlando and Pensacola, Florida. 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.
Six cities were removed from the list of extremely overvalued markets -- Essex, Massachusetts, Worcester, Massachusetts; Jackson, Michigan; Bay City, Michigan; Portland, Maine; and Charlottesville, Virginia.
"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.
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