New York, March 13, 2006--According to analysis by Global Insight and National City Corp., the number of very overpriced housing markets grew in the last three months of 2005 from the prior quarter despite slowing demand and rising mortgage rates.
The study said that 42 percent of the top 299 U.S. metro housing markets were considered "extremely overvalued," making them vulnerable to price declines.
The number of expensive markets rose to 71, up 15 percent from 62 in the third quarter, according to the study.
Interest rates on U.S. 30-year mortgages averaged 6.22 percent in the fourth quarter, up from 5.77 percent in the third quarter, based on Freddie Mac data.
"While the incidence of overvaluation clearly increased, we are beginning to see the pace of price appreciation slowing, with the lowest increase since the third quarter of 2003," National City's chief economist, Richard DeKaser, said in a statement.
Continued strong appreciation has pushed home affordability to its lowest point since 1991, and excessive valuations continue to spread, DeKaser said.
There have been signs that the housing sector, which has been vital to U.S. economic growth over the last five years, has started to cool since the end of 2005.
Major U.S. homebuilders such as Toll Brothers, have warned of slowing orders, while other data suggested that the home prices in some of the hottest markets may have peaked.
The U.S. median price on existing single-family homes slipped to $213,000 in the fourth quarter from $215,900 in the third quarter, according to the National Association of Realtors. However, the national median price finished 13.6 percent higher in 2005 than 2004, its biggest annual increase since the 14.4 percent rise in 1979.
Pending sales of U.S. homes fell 1.1 percent in January from December and 4.8 percent from a year earlier, the National Association of Realtors reported on Monday.
California and Florida had the highest concentration of overvalued markets, accounting for 18 of the 20 most expensive U.S. areas.
In contrast, eight of the 10 most "undervalued" markets are in Texas, the study showed.
"Price increases continued to slow down, as they did in the third quarter, which suggests that a return to more normal valuations may lie ahead," Philip Hopkins, managing director of U.S. Regional Services at Global Insight, said in the statement.
