THE GLOBAL INSIGHT/NATIONAL CITY Housing Valuation Analysis reports that 56 metro areas, or 32 percent of the total single-family housing market, are at risk of future price declines. This represents a 1 percent increase from the previous quarter's findings.

The study examined the top 299 U.S. real estate markets to determine what home prices should be, controlling for differences in income levels, population density, interest rates, and any perennial market premiums or discounts. Any markets with valuation premiums rising above 30 percent were deemed “at risk” for price corrections, keeping in mind the typical degree of overvaluation that has preceded the 63 known local market price declines since 1985.

However, Richard DeKaser, chief economist at National City Corp., says that the implications are not that the bottom will completely fall out of the hottest-selling markets. Rather, he says, the research indicates that “the conditions of extreme overvaluation are spreading.”

Five metropolitan areas edged their way onto the list while two areas fell off. The additions are Fort Walton Beach, Fla.; Portland and Eugene, Ore.; Edison, N.J.; and Bethesda, Md. Each area boasted price gains of between 21 and 29 percent, with the exception of Fort Walton Beach, where prices advanced 6.9 percent during the quarter. Meanwhile, Boston and Essex, Mass., showed moderating price appreciation.

DeKaser says that if prices continue to show moderation, as he believes they will, many extremely overvalued markets will undergo orderly price correction rather than steep absolute declines. However, he warns that it may still be too early to tell.

“Next year is going to be critical,” he says.