Housing affordability back to pre-bubble levels
Study shows formerly overvalued markets in California, Nevada and Arizona are seeing prices come down substantially.
NEW YORK (CNNMoney.com) -- Declining home prices across the nation are bringing valuations - the difference between what a home should cost and its actual price - back to pre-bubble levels, according to a survey released Monday.
The survey, conducted for financial research firm Global Insight and banking company National City Corp. (NCC, Fortune 500) found that home prices declined in 262 of the 330 metropolitan areas surveyed during the first three months of the year.
The sharp dip in home prices means that only 8 markets can now be considered overvalued, down from 14 markets last quarter. In mid-2006, at the height of the bubble, a full 53 metro areas were considered over-valued.
"We've covered a lot of territory in terms of restoring balance in the housing market," said National City's chief economist, Richard DeKaser. "The froth has been completely blown away."
The survey seeks to give a more accurate picture of housing affordability by analyzing data on household income, population density and historical price trends, in addition to current home prices and interest rates.
The move toward a more balanced market is most dramatic in areas where home prices saw the biggest runup during the housing bubble that began in 2004.
In Stockton, Calif., the average price of a single-family home fell 35% to $230,800 in the first quarter of 2008 from $357,800 in the first quarter of 2006. Over the same two-year period, Stockton has gone from being 71% over-valued to 4.3% over-valued.
In Las Vegas, home prices have come down nearly 20% since the first quarter of 2006, when the city was deemed 30% overvalued. As of the first quarter of 2008, the survey said, home prices accurately reflected the fundamentals of supply and demand.
Home prices in Phoenix have fallen 10% over the last two years. The city's homes were overvalued by 42% in the first quarter of 2006; now that figure is down to 20%
Jeannine Cataldi, senior economist at Global Insight, points out that determining whether the housing market has hit bottom depends on many factors - including the troubled credit markets, mounting consumer confidence and excess supply of homes.
DeKaser thinks the home price decline for the country is about half over.
Home prices have fallen more than 3% this year, according to the Office of Federal Housing Enterprise Oversight, and DeKaser thinks the housing market will hit bottom at 7%, which he says will happen at the end of this year. 
