A recent study conducted by Global Insight and National City has come to the conclusion that a significant number of America's housing markets are, in the words of the study itself, "extremely overvalued."

The study discovered that some 71 U.S. housing markets, representing more than a third of all American housing units (39%), were valued at least one-third higher than what was considered "normal" for that area, based on such mitigating factors as median sales prices and income, population, and historic home values.

The number of overvalued areas in America was up 3% from the fourth quarter of 2004, when housing in 64 U.S. markets was considered higher than could be considered sustainable. Even though a 3% increase may not seem substantial in and of itself, the 39% overall figure represents a startling increase from the first quarter of 2004, when only 1% of America's housing was considered overvalued.

That's a 38% increase in less than two years, which is enough to catch the eye of economists, but what do such figures mean to consumers? The study suggests that it could likely indicate a downturn in home prices in the affected areas over the next three and a half years, and the price drop could be significant. In fact, over the years, it has historically translated to a drop of one-half of the overvaluation.

For the basis of the nationwide study, statistics from the Office of Federal Housing Enterprise Oversight were examined and analyzed. According to those statistics, the first quarter of 2006 saw single-family American home prices posting their smallest price gains since 2003 (a 7.3% annual rate).

Although there are overvalued areas cross the country, California and Florida led the nation by a considerable margin. In fact, those two states accounted for 17 of the top 20 areas in the survey. Topping the list was Naples, Florida, which was determined to be 102% overvalued according to the study's findings. Salinas, California, was second, and the top five areas on the list included Port St. Lucie, Florida; Merced, California; and Bend, Oregon.

Among America's largest metropolitan areas, Miami, Florida, was considered the most highly overvalued market, at 64 percent. Miami was then followed by three California cities, Los Angeles (at 64%), Oakland (at 61%), and San Jose (at 44%). The study also found two counties in New York, Nassau and Suffolk (at 44%), and Phoenix, Arizona (at 43%) to be significantly overvalued.

It's not all bad news, however. There are still some parts of the country where the real estate markets weren't considered overvalued. In fact, of the 317 examined by the study, there were 88 America's largest metropolitan markets were actually considered to be undervalued. In that regard, several cities in Texas seemed to fare best, according to the study. The Dallas/Ft. Worth area led the nation, being undervalued by 19%, Houston was second (at 16%), and San Antonio was fourth (at 11%). Much-beleaguered New Orleans, Louisiana, came in third, being undervalued by 12%, according to the study's findings.

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