As if owning and investing in real estate isn’t complicated enough, now you have to consider if the market you live or invest in is "overvalued." A study that came out in early January analyzed 299 real estate markets to determine if they were overpriced and by how much.

The Housing Market Analysis was conducted by National City Corp., a financial holding company, in conjunction with Global insight, a financial information provider. The conclusion was that 38 percent of the 299 metro housing markets are extremely overvalued and at risk for a price correction.

National City arrives at its estimates of what the typical house in these markets should cost by examining the town’s population densities, local interest rates, and income levels. It also factors in historical premiums and discounts for each area. If these numbers translate to 30 percent higher than the estimates, the area qualifies as overvalued.

The report named Naples, Fla. as the most overvalued of all housing markets in the United States. A single family, median-priced home there sells for $329,970 (I challenge you to find one), 84 percent more than what it should cost. The top 10 overvalued regions were all in either Florida or California. Port St. Lucie, Fla. was fourth at 72 percent overvalued, the California cities went from a high of Merced at 77 percent to Riverside being 10th at 65 percent.

Some areas per the report are starting to trend back to normal valuations. For example, Massachusetts had seven overvalued markets, however, prices had fallen in all seven, bringing the values more in line. The same could not be said of Florida. The Sunshine State had 15 different markets on the list of "extremely" overpriced metro areas (three areas were still overvalued but not extremely so), and all 15 had grown more overpriced during the quarter.

As far as our immediate area goes, Sarasota and Tampa were both part of the analysis. Sarasota came in at number 20 out of the 299 with a 56 percent overvalued percentage, and Tampa further down the scale with a 34 percent overvalued rate. There’s little doubt, in my mind at least, that if National City Corp. chose Anna Maria Island to analyze it would certainly come in overvalued.

What exactly does this all mean? My personal and unscientific opinion is that it’s almost impossible to do a fair evaluation in a region that has a large population of wealthy retirees. Income levels for this group of residents may not justify the amount of money they spend on housing. It is not necessarily a parameter of total wealth, which is what really determines the dollars spent on homes. The analysis may be valid in regions not known for their retiree population like some cities in California, but the residents of Naples and Sarasota spend more time reading the stock returns than working on their weekly stream of income.

That being said, there are cities that you can still live in where real estate sales prices closely track the expected values, Albuquerque, N.M., Dayton, Ohio and Omaha, Neb., all came in at zero percent, neither overvalued or undervalued. But if you want a bargain, move to Texas; the state dominated the discounted markets list with the most undervalued housing markets.

Being a firm believer in the free market, I’m not sure I accept the concept of an overvalued market. Like any other commodity, the real estate market will seek its own level. If the price is too high no one will buy, it’s really not that
complicated.