A study of the top 299 U.S. real estate markets released this week by the economics department of National City Corp. concludes that 53 metro areas representing 31 percent of the total U.S. housing market are “extremely overvalued” and confront a high risk of future price correction.

Richard DeKaser, chief economist of National City Corp., and research assistant John G. Charamonde conducted the study, which examines historical comparisons for the last 20 years and reflects 80 percent of the U.S. single-family housing market, National City Corp. announced today. 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 study, “House Prices in America: Valuation Methodology and Findings,” finds Santa Barbara, Calif., to be the country’s most overheated market at 69 percent above the norm, while College Station, Texas, is ranked the most undervalued at 19 percent below the norm.

Among the most overvalued metro areas, according to the report: Salinas, Calif., 67 percent overvalued; Naples, Fla., 62 percent; Riverside, Calif., 60 percent; Merced, Calif., 59 percent; Port St. Lucie, Fla., 58 percent; Stockton, Calif., 58 percent; and Madera, Calif., 57 percent.

Among the most undervalued metro areas, according to the report: El Paso, Texas, -17 percent; Montgomery, Ala., -15 percent; Odessa, Texas, -14 percent; Killeen, Texas, -13 percent; Dallas, Texas, -11 percent; Elkhart, Ind., -11 percent; Huntsville, Ala., -11 percent; and Memphis, Tenn., -11 percent.

“If home prices are overvalued, then, by definition, the risk of a price correction is high. To the extent that economic growth remains strong, however, these risks will be greatly reduced,” DeKaser said in a statement. “Given the obvious importance of this issue to the nation’s economy, and the absence of any consensus regarding the question of housing market valuation, this report describes our efforts – and findings – along those lines.”

For the study, price-to-income ratios are statistically explained by household population density, mortgage interest rates, relative income levels and characteristics unique to each metro area. A similar study by DeKaser in February found rising risk of price corrections in more than one dozen of the top 99 metro markets, which constituted localized house-rice “bubblettes.”

National City Corp., headquartered in Cleveland, Ohio, is one of the nation’s largest financial holding companies. The company operates through a banking network primarily in Ohio, Illinois, Indiana, Kentucky, Michigan, Missouri and Pennsylvania, and also serves customers in selected markets nationally. Its core businesses include commercial and retail banking, mortgage financing and servicing, consumer finance and asset management.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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