Fourth-quarter home prices declined in 23 percent of metro areas included in a study released today, while the total number of overvalued housing units dropped.

The “House Prices in America” study revealed that 72 of 317 metro areas studied experienced price declines in the fourth quarter, up from 65 metro areas with price declines in third-quarter 2006. The study was prepared by economic information company Global Insight and financial holding company National City Corp.

Metro areas studied in the report account for 77 percent of existing single-family housing units and 86 percent of related real estate value. The study is based on a historical evaluation of house prices, interest rates, household income, and population densities, among other data.

In California, 21 of 26 metro areas included in the study had negative appreciation rates in the fourth quarter. Ten of 18 reported metro areas in Florida had price declines, and a total of 29 states were home to one or more metro areas that experienced price drops compared to the third quarter.

The overall number of single-family housing units deemed to be overvalued declined from 17 percent of the total number of single-family housing units in third-quarter 2006 to 16 percent in the fourth quarter. And in terms of single-family asset value, the percent overvalued fell from 31 percent in the third quarter to 28 percent in the fourth quarter, according to the report.
Single-family home prices increased 1.8 percent in the fourth quarter, which was the first quarterly growth since second-quarter 2005, according to the report. And prices rose 4.1 percent compared to fourth-quarter 2005.

The 72 metro market areas that experienced price declines account for 22 percent of all single-family real estate assets in the country.

“Home-price appreciation continued to be strongest in those parts of the country that came late to the explosion in home prices — the interior and northern parts of the West, including northern Arizona, Utah, Idaho, Washington and Oregon,” Global Insight and National City reported.

The study identifies 57 metro areas as overvalued in the fourth quarter, compared with 60 overvalued metro areas in the third quarter. Markets with valuation premiums above 35 percent were deemed at risk for price corrections, based on the typical degree of overvaluation that preceded local market price declines observed since 1985, according the study announcement.

“As it has for the past several quarters, the greatest incidence of overvaluation continues to exist in pockets along the Atlantic and Pacific coasts,” the announcement states. “New England, however, no longer appears to be significantly overvalued.”

Naples, Fla., remained the most overvalued market in the country, according to the report, with 79.9 percent overvaluation, followed by Bend, Ore., at 75.1 percent; Merced, Calif., at 75.1 percent; Madera, Calif., at 71.6 percent; Salinas, Calif., at 64.7 percent; Stockton, Calif., at 62.2 percent; Port S. Lucie-Fort Pierce, Fla., at 61 percent; Riverside-San Bernardino, Calif., at 59.9 percent; Prescott, Ariz., at 59.2 percent; and Yuba City, Calif., at 58.9 percent.

Six of these top-10 overvalued markets had a rise in overvaluation in the fourth quarter compared to fourth-quarter 2005, while eight of 10 had a drop in the overvaluation rate in the fourth quarter compared to third-quarter 2006.

The study ranked New Orleans as the most undervalued market, receiving a negative overvaluation rating of 38 percent. College Station-Bryan, Texas, was next on the list, with a negative 22.5 percent rating, followed by the Texas cities of Dallas, Fort Worth, Killeen, Houston, El Paso, and McAllen. Jackson, Miss., ranked as the ninth most undervalued metro area among those studied, followed by Tulsa, Okla.

“Nearly all markets posted a decline in the level of overvaluation, which signals that the overall housing market is beginning to trend back to more normal price growth,” said Jeannine Cataldi, senior economist and manager of Global Insight’s Real Estate Service, in a statement.

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