Home prices have fallen below fundamental values in more than half of U.S. states, overcorrecting from bubbles in some markets and dragged down by the recession in others.

That’s the conclusion of analysts at mortgage insurer PMI Mortgage Insurance Co., who warn home prices during the next few years will vary "far more by location than usual."

PMI’s monthly analysis of economic, housing and mortgage market conditions attempts to tackle the question, "Have house prices fallen by enough to be affordable again?" The answer to that question depends on where you live, PMI analysts said.

PMI looked at home prices relative to income at the state level, using 1995 as a baseline. Because of home-price declines during the bust, growth in per capita income has outstripped home prices in 35 states over that time frame. Home prices are trailing income growth by double-digit rates in 30 states, PMI said.

States that saw significant price appreciation during the boom but which have now seen prices overcorrect include Alabama, Georgia, Idaho, Illinois, Michigan, Missouri, Montana, Nevada, New Mexico and West Virginia, PMI said.

States that were largely immune to speculative bubbles but which have seen home prices dragged down below fundamentals by the recession include Arkansas, Kentucky, Kansas, Indiana, Iowa, Mississippi, Nebraska, Ohio, Oklahoma, South Dakota, Texas and Wyoming.

States where home prices still appear elevated relative to income include Alaska, California, Hawaii, Massachusetts, New Jersey, New Hampshire, New York, Oregon, South Carolina and Washington, D.C.

PMI’s analysis showed prices have returned to historical norms relative to income in Arizona, Connecticut, Colorado, Delaware, Florida, Louisiana, Maine, Maryland, Minnesota, North Carolina, North Dakota, Tennessee, Pennsylvania, Rhode Island, Utah, Vermont, Virginia, Washington and Wisconsin.

There are many ways to measure affordability, but PMI chose to compare home prices to income because over time they should grow at similar rates.

In states where home prices have outstripped income growth, it’s possible that those prices can be supported if there are space constraints that preclude building more homes in desirable areas, the report noted.

In other cases, prices will have to fall further to bring house prices and incomes back into line. Because incomes are expected to rise over time, future price drops may be less than suggested by PMI’s analysis.

"House prices will likely fall in some areas in the near term, while rising in others as the recovery gains traction in different markets at different times," the report concluded. "Each area’s recovery will depend on local supply and demand fundamentals such as economic growth, the amount of distressed sales, and household formations — likely augmented by how far above, or below, prices vary from incomes."

The report forecasts that home sales will pick up in 2011, especially in the second half of the year, thanks to an expected rise in job growth, increasing numbers of households, and low mortgage rates.

PMI economists project existing sales will grow by 8.7 percent in 2011, to 5.36 million units, while sales of new homes will climb 19.9 percent to 385,000 units. Home prices are likely to continue a seasonal decline for a few months before edging upward as sales increase, the report said.

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