The cover of last week’s Economist asks, “Is your home overvalued?”

It’s a question on many people’s minds as they watched the market value of their homes double and triple during the housing boom.

Seventy-one metropolitan areas, accounting for 39 percent of all single-family housing value, were labeled “overvalued” for the first quarter of 2006, according to a recent report. The number is up from 64 markets, or 36 percent of all single-family market value, during the fourth quarter of 2005.

The report, prepared by Global Insight and National City Corp., says that overvaluation became more pervasive during first-quarter 2006. As recently as first-quarter 2004, only three metro areas were deemed overvalued.

A market is deemed “overvalued” when the rate of price appreciation exceeds 34 percent, and the report bases this finding on an historical examination of 66 actual metro-area price corrections during the 1985-2005 period.

“Interestingly, price appreciation continues to be strongest among more overvalued markets,” the report states. “Of the 50 metro areas most overvalued during the fourth quarter of 2005, the average pace of appreciation during the first quarter was 10.1 percent.”

Meanwhile, the 50 most undervalued metro areas posted an average increase of 2.7 percent during the fourth quarter.

California and Florida have the most overvalued metro areas, with 17 of the 20 most overvalued markets in those two states.

While home prices are still increasing in many markets, the quarter-to-quarter pace of appreciation is slowing in most metro areas and is nearly flat in San Diego and Boston, according to the report.

Single-family house prices appreciated at a seasonally adjusted annual rate of 7.3 percent during the first quarter 2006, according to statistics compiled by the Office of Federal Housing Enterprise Oversight. The figure excludes the influence of mortgage refinance activity.

The report notes that “While that pace is still strong by historical standards, it extends a trend of slowing appreciation over the past year.” Home-price appreciation has steadily declined after peaking at 12.1 percent in the second quarter 2005, and the most recent gain is the weakest since the third quarter of 2003, the report states.

At the metro level, quarter-over-quarter price appreciation has decelerated since peaking in the second quarter of 2005, the report states. During that quarter, Naples, Fla., (at 12.6 percent) and Phoenix (at 11.8 percent) had the highest pace of appreciation, while these two metros had appreciation rates of 4.6 percent and 3.7 percent, respectively, in the first quarter of this year.

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