Global Insight released the second quarter 2008 update of the U.S. housing valuation analysis, House Prices in America, showing that single-family home prices continue to fall across the country, though at a slower rate than last quarter, and that extreme overvaluation of house prices is essentially nonexistent, a sign the nation's housing "bubble" has popped and house prices reflect a healthy balance in relation to long-term fundamentals.

Nationwide, house prices are down 4.8% from a year ago, this housing cycle's peak high point. Prices fell in the second quarter in 152 of the 330 metro areas covered in the study, representing 46% of all single-family housing units in the U.S. The second quarter decline of 5.3% (annualized) compares with a 6.6% decline in the first quarter 2008, which represented 267 (81%) of 330 metro areas. For comparison, 295 (89%) declined in the fourth quarter of 2007.

California, Florida and Michigan continue to account for the most severe losses, representing 43 of the 50 worst performing metropolitan areas. California and Florida had been among the most overvalued states for the past several years. Michigan continues to struggle with the impact of a slumping economy. Other housing markets in the bottom 50 include Las Vegas, Nevada; Phoenix, Arizona; and Washington, D.C. Note that each of these metro areas was previously identified two years ago in our research as being the most vulnerable to price declines.

Six housing markets, down from a peak of 51 in 2005, and virtually unchanged from the first quarter of 2008 (five), were judged extremely overvalued in the second quarter, amounting to 1% of the nation's single family housing stock. Extreme overvaluation is limited to Hawaii, Washington, Oregon and Utah. Pockets of overvaluation remain where they have been - along the East and West Coasts - while the middle of the country remains either fairly valued or undervalued, though some previously overvalued areas of the Northeast and Coastal California and Florida are now rated as fairly valued. Nevertheless, real estate markets are not ready to recover. The building and financing excesses of the boom years have yet to be worked off. There remains a huge inventory of unsold homes on the market with foreclosures adding more daily.

James Diffley, group managing director of Global Insight's Regional Services Group, said, "though the fundamental overvaluation has largely been removed, downward pressures on home prices remain strong."

Jeannine Cataldi, senior economist and manager of Global Insight's Regional Real Estate Service, added, "although the markets that were extremely overvalued two years ago are seeing expected price declines, other areas are seeing price declines due to weak economic conditions. The market has a lot of inventory to work through before prices will change course."