Honolulu homes overvalued by more than a third, study says

The latest ratings placed Honolulu 59th of the 317 metropolitan areas

Housing valuations in Honolulu rank in the top third nationwide, according to a national economic study, although home prices here remain far below the most-overvalued markets.

The study found Honolulu's housing market to be 39.2 percent overvalued in the first quarter of 2006. That's a major increase from the first quarter of 2005, when homes were found to be 19.1 percent overvalued.

The latest ratings placed Honolulu 59th of the 317 metropolitan areas in terms of how home prices compare to the study's own calculation of fair market value. The study bases its valuations on factors such as home prices, interest rates, household incomes, population densities and historical premiums.

The study is a joint project by the economics department of National City Corp., a bank holding company based in Cleveland, and Global Insight Inc., an economic research firm based in Waltham, Mass.

Overall, the report concluded that overvaluation of homes has become more pervasive nationwide. A total of 71 metro areas were deemed overvalued in the latest study, up from 64 out of 299 markets surveyed in the fourth quarter of 2005.

National City Corp. considers overvaluations greater than 34 percent to be "extreme." With an overvaluation rate of 39.2 percent, Honolulu would fall into that category.

But Honolulu Board of Realtors economist Harvey Shapiro said there's no indication that Honolulu is in a housing bubble.

While Oahu's median home price hit a record high of $668,300 in May, the pace of appreciation appears to be slowing down.

"I don't think we're in a bubble," Shapiro said. "There's no indication that we've ever been in one in this cycle. Prices are still moving forward, though more slowly than a year ago."

Other economists, such as Paul Brewbaker, have said there are indications that the market is starting to see its last inning.

The most overvalued cities were concentrated in the coastal states of California and Florida, the study said.

Several, such as Naples, Fla., showed much more dramatic overvaluations -- at 102.6 percent in the first quarter of 2006, the highest in the nation. Nine markets -- all in Florida and on the West Coast -- were rated more than 70 percent overvalued.