WASHINGTON (MarketWatch) -- A growing percentage of U.S. housing markets are "extremely overvalued" and are at risk of falling prices, according to a study based on government data released Monday by Global Insight and National City.
In the first quarter, 71 housing markets, representing 39% of all U.S. 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% of housing in the fourth quarter. In the first quarter of 2004, just 1% of housing was considered overvalued. To be "extremely overvalued," homes had to be valued at least 34% more than "normal." Read the complete report.
When prices do fall from overvalued levels, they typically fall by about half the overvaluation, DeKaser said. The correction usually takes three and a half 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% annual rate in the first quarter, the slowest price gains since 2003.
"Price appreciation is slowing but it continues at a historically high rate, boosted by especially strong increases in already overvalued markets," said Richard DeKaser, chief economist for National City. The most overvalued markets continue to have the highest price appreciation, he said.
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