A report updated for the first quarter of 2006 shows what areas have the most overvalued housing. You can view the report here. The report says it takes 3 and a half years to correct the overvaluation.

For Q1 2006, they list the San Luis Obispo housing market as being 56.5% overvalued, which ranks about 30th on their list of 317 areas nationwide.

Other California areas with worse overvaluation figures than SLO are:

Salinas - 79.1%
Merced - 77.4%
Stockton - 74.9%
Santa Barbara - 73%
Madera - 72.5%
Modesto - 68.6%
Redding - 68.4%
Yuba City - 67.9%
Napa - 65.3%
Fresno - 63.6%
Bakersfield - 63.3%
Los Angeles - 61.3%
Chico - 60.7%
Vallejo - 57%
San Luis Obispo - 56.5%

The lowest ranked California areas were San Diego and Hanford at 38.6%.

The most undervalued areas are in Texas.