By BOB KRETSCHMAN

Because it is more than 30 percent overvalued, the Grand Junction area’s housing market faces “a high risk of future price correction,” the study said.

However, local real estate authorities say the Grand Junction area’s housing market isn’t overvalued. They say the local market is on solid footing and fairly reflects supply and demand.

“Our market is very healthy here in Grand Junction,” said Kevin Borman, president of the Grand Junction Area Realtor Association.

The study, conducted quarterly by National City Corp., a Cleveland-based bank holding company, and Global Insight, an economic analysis firm, looks at the ratio between home prices and household income in 299 metropolitan areas nationwide.

Richard DeKaser, chief economist for National City Corp., said the study examines the effects that a variety of factors unique to each metropolitan area have on housing valuations. Among those factors are mortgage interest rates, population density and household incomes.

Another factor adjusts for what DeKaser said is the difference in price-to-income ratios that can’t be explained by other factors in the equation. For example, homes in beachfront communities always command higher prices because of the amenities those communities offer. This factor statistically adjusts for such price influences that are difficult to quantify.

From those statistical factors, researchers calculate a “model estimated home price” that, according to the formula, reflects the ideal market price. They compare that model price to the actual home price to come up with the amount of overvaluation or undervaluation in each market.

A compilation of the study’s data since 1985 shows that the Grand Junction area’s housing market was undervalued for much of the time between 1985 and 1994, reflecting the after-effects of the oil-shale bust. During that period, the market’s low point was an 18.5 percent undervaluation in the second quarter of 1988.

From 1994 until 2002, the Grand Junction area’s housing market stabilized between 1 percent and 10 percent overvalued. As the latest energy boom and economic resurgence gained steam after 2002, the local housing market’s overvaluation climbed rapidly, reaching 32.5 percent in the second quarter of 2005.

In the third quarter, the overvaluation dropped slightly to 31.4 percent, the study found, placing Grand Junction at No. 61 on the list of the 65 most overvalued communities in the nation. According to the statistical model, the ideal home price in the Grand Junction area during the third quarter of 2005 was $128,148. However, the actual home price (taken from Office of Federal Housing Enterprise Oversight information) was $168,357.

Grand Junction was the highest-ranked Colorado metro area in the study. Greeley’s housing market was 19 percent overvalued, followed by Boulder at 18 percent. Colorado Springs, Denver and Fort Collins markets were all 10 percent overvalued, while the Pueblo market was 5 percent overvalued, according to the study.

Grand Junction’s rise above 30 percent overvaluation puts the housing market at high risk of a market “correction,” or significant price decline, DeKaser said.

“When we’ve observed price declines, they’ve typically happened in markets over 30 percent,” he said.

“Corrections generally play out very slowly, over a period of three years or so,” DeKaser said.

In a typical correction, home values decline by about half the amount of their overvaluation, he said.

Borman said the contention that the Grand Junction housing market is significantly overvalued is “hogwash.”

He said home values in the Grand Junction region are appreciating at 11 percent to 12 percent annually, which reflects high demand for housing and the tight supply of homes. Real estate in the Grand Valley remains a good investment because the market is strong and sustainable, he said.

Jeff Thredgold, corporate economist for Vectra Bank Colorado, said he doesn’t believe a so-called housing “bubble” exists in Colorado and disagrees that many of the high-risk cities identified in the study are due for price declines.

“I wouldn’t be overly concerned about having Grand Junction on that list,” Thredgold said.

He said housing prices in Colorado reflect the economic strength of the state’s various regions.

Grand Junction’s housing market remained strong during the early 2000s because the community didn’t experience the same high-tech bust that many Front Range cities did at the same time, he said.

This year, he said, the entire state is poised for economic growth, and the housing market will naturally follow.

“As the economy in Colorado picks up speed, housing will perform better,” Thredgold said.

Bob Kretschman can be reached via e-mail at bkretschman@gjds.com.