US News & World Report: Housing bubble correction could be severe

Hmmm.. "Severe"... Hmmm... That sounds scary... Hmmm.... "Marge - round up the kids, we're sellin' the house while the gettin' still good!"

That's the jist of conversations over dinner tonight throughout America... Fuel to the fire...

Contrary to popular belief, the housing market hasn't cooled off that much. In fact, residential real estate prices continue to soar in a number of key metropolitan areas, according to a new study released this week.

That's a good thing, right? Actually, no–because the froth building in housing prices raises the distinct possibility of significant corrections to come in many of those regions.

In the first quarter, home prices nationwide rose an additional 7.3 percent, according to a joint study by the financial services firm National City Corp. and the research firm Global Insight. As a result, there are now 71 metropolitan areas–representing nearly 40 percent of all single-family homes–that can be classified as "extremely overvalued," according to the study.

Another worrisome sign is that the 50 most overvalued markets at the end of last year were again the biggest winners at the start of 2006. Indeed, the 50 hottest markets saw a 10.1 percent increase in home prices, on average, in the first quarter.

This study's findings would seem to contradict other housing market reports that have shown a steady decline in home prices recently. For example, the Commerce Department has indicated that the median sales price on new single-family homes purchased has fallen around 3 percent since the start of the year.

The bottom line: Real estate prices eventually correct themselves. And unfortunately for homeowners, it often takes years before home prices start to rise again, especially after a big run up.

So what about families who recently bought into one of these "extremely overvalued" markets in hopes of turning a fast buck? "I extend them my deepest sympathies," says DeKaser.