By Les Christie, CNNMoney.com staff writer
June 15 2007: 10:54 AM EDT
NEW YORK (CNNMoney.com) --
Some of the nation's most overheated housing markets may be cooling off to more
reasonable levels following their unprecedented run-up in the first half of the
decade.
According to a report from
the financial service companies, National City Corp and Global Insight, the
number of single-family homes they judged overvalued in the United States fell
from 17 percent in the last quarter of 2006 to 14 percent in the quarter ended
March 31.
Of the 317 metro areas
covered by the survey, 157 of them, experienced price declines during the
quarter. That - combined with wage gains and steady interest rates - reduced
widespread overvaluation of homes.
The report's authors determined
proper home values based on population density, relative income levels, interest rates and historically observed
market premiums or discounts. They compared them to actual selling prices to
arrive at overvaluations or undervaluations.
The figures are important
to investors and home buyers because highly overvalued markets are the ones
most in danger of future price declines.
The latest price declines
were mostly clustered in areas that had seen big price run-ups during the boom,
with California, Florida, New York and Massachusetts taking hits.
James Diffley,
managing director of Global Insight's Regional Services Group, said in a statement,
"The price declines we are seeing today in California, Florida, and New
England were predicted two years ago when we identified them as the most
extremely overvalued markets in the nation."
Most overvalued areas are
on the coasts while the heartland tends to have more fairly valued, even
undervalued properties.
But economic problems in
manufacturing states like Michigan and Ohio caused price drops in those states
as well.
The report identified Bend,
Oregon as the most overvalued metro area in the nation. The median
single-family house price there is more than $324,000, almost twice what it
sold for four years earlier and 78.7 percent over the survey's valuation price.
Bend took over first place
from Naples, Florida, which had led the pack for several years. Price declines
in Naples enabled it to slip into third place at 63.4 percent overvalued. In
second place was Prescott, Arizona, at 64.6 percent.
The most undervalued
market, according to the survey, is Dallas, where homes sell for 24.9 percent
below their proper price. Texas boasts the four most undervalued metro markets
in the report.
The metro areas facing the
greatest threat of future price drops are in California, according to Diffley.
He blamed it on a,
"huge glut of new and existing homes for sale on the market, and the
tightening of credit standards in light of the subprime mortgage
troubles [that] will continue to exert downward pressure on prices for some
time."