The net addition of three metropolitan areas to the list of extremely overvalued markets includes five new listings and two areas that have been dropped. New to the list are Fort Walton Beach, Fla.; Portland and Eugene, Ore.; Edison, N.J. and Bethesda, Md. Except for Fort Walton Beach, where prices advanced at a 6.9 percent annual pace during the quarter, each area among the five new listings posted increases between 21 and 29 percent. The two metro areas that fell off the list of extremely overvalued markets are Boston and Essex, each located in eastern Massachusetts. While prices there continued to rise at a healthy clip, improving fundamentals, such as income and population gains, helped reduce the imbalance.

"We're not surprised by the emergence of extreme overvaluation in what are clearly hot spots for the housing market," stated Philip Hopkins, managing director of U.S. Regional Services at Global Insight. "And the Boston area adjustment illustrates the possibility for orderly corrections, rather than inevitable crashes. Outside the hottest housing markets, some signs of a slowdown in the rate of price growth were evident. The average level of overvaluation declined from 22.7 percent to 19.9 percent, with 171 of the 299 metropolitan areas analyzed showing a decrease in the extent of overvaluation between the first and second quarters."

The Global Insight/National City Housing Valuation Analysis examines the top 299 U.S. real estate markets to determine what home prices should be, controlling for differences in population density, relative income levels, interest rates, and historically observed market premiums or discounts. Markets with valuation premiums above 30 percent were deemed at risk for price corrections based on the typical degree of overvaluation that preceded the 63 known local market price declines observed since 1985.

The Global Insight/National City Housing Valuation Analysis is a joint venture that combines a statistical model originally developed at National City Corporation with data largely developed at Global Insight. More information is available at www.globalinsight.com/housingindex or www.nationalcity.com/economics.