About 38 percent of the top 299 metro housing markets “are extremely overvalued and at risk for a price correction,” according to a third-quarter report released today by National City Corp., a Cleveland-based financial holding company, and Global Insight Inc., an analysis company.
“While the incidence of overvaluation clearly increased, we are beginning to see more diversity among metro areas. Not all are moving toward loftier valuations, as was the case during the 2003-2004 period,” said Richard DeKaser, chief economist at National City Corp. “Whether the most extremely overvalued markets will have an orderly price correction to more normal, historic levels remains to be seen.”
According to the “Global Insight/National City Housing Valuation Analysis,” the number of extremely overvalued markets declined to 65 in the third quarter from 67 in the second quarter.
Four new metro areas joined the list of extremely overvalued markets, while six cities dropped off the list, National City Corp. reported. Newly included among the extremely overvalued are: Honolulu; Orlando; Pensacola, Fla.; and Phoenix. Moving off the list of extreme overvaluation was Essex, Mass.; Worcester, Mass.; Jackson, Mich.; Bay City, Mich.; Portland, Maine; and Charlottesville, Va.
The analysis found that the move overvalued markets are: Naples, Fla., 82.3 percent; Santa Barbara, Calif., 78.2 percent; Salinas, Calif., 76.8 percent; Merced, Calif., 74.6 percent; Stockton, Calif., 71.5 percent; Port St. Lucie, Fla., 68.1 percent; Modesto, Calif., 66.2 percent; Madera, Calif., 66.1 percent; Napa, Calif., 64.2 percent; and Medford, Ore., 63.8 percent.
Meanwhile, Odessa, Texas, was the least overvalued market, according to the analysis.
“Generally, Massachusetts is experiencing a return to more normal valuations while Florida is doing the opposite,” according to the announcement today.
“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, in a statement.
The “Global Insight/National City Housing Valuation Analysis” examines the top 299 U.S. real estate markets to determine an appropriate level for home prices, controlling for differences in population density, relative income levels, interest rates, and historically observed market premiums or discounts. Markets with valuation premiums above 30 percent were deemed at risk for price corrections based on the typical degree of overvaluation that preceded the 63 known local market price declines observed since 1985.
The analysis is a joint venture that combines a statistical model originally developed at National City Corp. with data largely developed at Global Insight.
National City Corp. operates through a banking network primarily in Ohio, Illinois, Indiana, Kentucky, Michigan, Missouri and Pennsylvania. Its core businesses include commercial and retail banking, mortgage financing and servicing, consumer finance and asset management.
Global Insight Inc. offers economic analysis, forecasting and financial information. The collects and delivers economic and financial information to clients and also provides consulting services.
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