Homes still overvalued even as prices slip

Prices of homes in many red-hot regions — California, South Florida and the New York metropolitan area — cooled in the final three months of 2006.

But 16 percent of the nation's single-family homes remained overvalued. That's slightly down from 17 percent in the previous quarter, according to research by Global Insight and National City.

The analysis used local household income, population density and historical prices to assign a fair value for the median home in each of 317 metropolitan areas, representing nearly 90 percent of home values nationwide.

The data showed the Seattle market being moderately overvalued by 31.7 percent, compared with 29.8 percent in the previous quarter.

The report suggested caution for homebuyers in parts of California, the Northwest, Arizona and Florida.

"Any market we identify as being overvalued is, at a minimum, at risk of a price decline," says Richard DeKaser, chief economist of National City. "So if you've got flexibility and you don't particularly feel that time is urgent right now, maybe it makes sense to wait." The report found attractive values in parts of Texas, Mississippi and Oklahoma.

The retreat in prices in the most overvalued markets is a good sign for housing, says economist Jeannine Cataldi of Global Insight. "Prices are coming down slowly, with no precipitous drops," she says.