39% of Housing Extremely Overvalued

A new report from Global Insight/National City (pdf) finds that a growing percentage of U.S. housing markets are "extremely overvalued" and are at risk of falling prices.

Summary:

• Overvaluation became more pervasive during the first quarter of 2006.
• Seventy-one metro areas, accounting for 39 percent of all single family housing value, were deemed to be extremely over-valued at that time. That represents an increase from 64 markets, and 36 percent of all single family market value, during the fourth quarter.
• As recently as the first quarter of 2004, overvaluation was insignificant. At that time only 3 metro areas, accounting for just 1 percent of all single family house value, were deemed to be extremely overvalued.
• The coastal states of California and Florida continue to show the highest concentration of overvalued markets, accounting for 17 of the top 20.
• Quarter-to-Quarter price appreciation is slowing in most metro areas, and is nearly flat in San Diego and Boston.
• Property price appreciation remains strongest among the most over-valued metro areas, and visa-versa (sic). Between the fourth quarter of 2005 and the first quarter of 2006, the correlation between valuation and appreciation was +0.36, suggesting that house prices are diverging, not converging, with respect to normal valuations.