None of us likes to hear the bad news that we paid too much for our house. Or that our neighborhood is 20 percent overvalued and prone to downward adjustment.

But a group of economists in the business of assessing financial risk have come up with a new statistical tool to detect exactly that kind of real estate price bloat. It's called the Valuation Index, and it was released Tuesday by PMI Group of Walnut Creek, Calif., one of the largest insurers of home mortgages.

According to the index, real estate in the metropolitan Washington area is 18.2 percent overvalued.

But it's far from the most overvalued region in the country. That distinction goes to -- you guessed it -- California's frothiest areas, including Los Angeles (33.7 percent overvalued), San Jose (26.5 percent) and San Diego (22.3 percent). In the Southwest, houses in Las Vegas are 25.5 percent overvalued, according to PMI, and homes in the Phoenix-Scottsdale area are 22 percent overpriced.

PMI stands to pay out millions of dollars in claims if property values decline in overheated markets and insured mortgages default. The losses would be even steeper in areas where homes were overvalued when the mortgage was insured.

The insurer's index tracks historical home-price appreciation patterns in dozens of areas around the country, then examines the extent of deviation from the historical norms visible at present in any given market. The index has identified a handful of metropolitan areas where home prices are undervalued -- Denver prices, for instance, are 4.2 percent below where they should be by norms of several decades, and Detroit prices are 10.3 percent below.

But the index also pinpointed dozens of other markets where prices rise significantly above historical patterns and may be especially vulnerable to downward corrections if interest rates rise or local economies soften. PMI uses the index data to evaluate risk, area by area, when it insures home loans that have low down payments.

Besides Washington, East Coast metropolitan areas that PMI found to be overvalued include Miami (20.5 percent), Tampa-St. Petersburg (23.2 percent), Orlando (19.6 percent), New York's Long Island (20.4 percent), Baltimore (18.2 percent) and Providence, R.I. (19.1 percent).

PMI issued another alert list that monitors many of the same markets for insurance-loss purposes. It's called the "Market Risk" index, and it uses employment, household income and economic-growth data to project which areas have the highest statistical probability of net price declines -- not simply slowdowns in the rate of appreciation -- during the coming two years. By that measure, metropolitan Boston is ranked the most likely -- a 55 percent probability of decline -- followed by San Diego (54 percent chance) and Long Island (53 percent). Los Angeles is rated as having a 46 percent probability of house-price devaluation in the coming 24 months.

Metropolitan Washington, by contrast, has just a 24 percent likelihood, thanks to strong employment and household income growth. Most Florida markets have even less than that, including Miami (21 percent), Tampa-St. Petersburg (20 percent) and Orlando (11 percent) . Phoenix and Scottsdale, Ariz., are rated at just a 9.3 percent risk of price declines.

The safest places to minimize the risk of losing money on home-price valuations? Not surprisingly, they are among the most undervalued and underperforming already: Indianapolis (5.5 percent chance of decline but 2 percent undervalued already); Memphis (6 percent chance of decline but 1.7 percent undervalued); Columbus, Ohio (6 percent chance, 3.2 percent undervalued); and Cleveland (6.4 percent probability, 7 percent undervalued).

Assuming you accept PMI's statistical analyses -- and many sellers, builders and real estate agents probably would dispute them -- what do you do with such information? Bear in mind, PMI economists are hardly the only professionals to issue valuation warnings about California, Las Vegas and the East Coast. The Federal Reserve Board, among many others, has issued cautionary alerts about the potential dangers of frothy real estate markets for more than a year.

For would-be buyers in areas with risk alerts, the practical message is this: Approach purchase decisions with extra sensitivity to overpricing. Be aware that you could be buying at, near or just past the peak of the current valuation cycle. Push vigorously for price concessions to avoid ending up two years down the road with a house worth less than you paid.

For sellers, the message might be the flip side: Don't price over-aggressively when the prevailing winds may be beginning to blow against you. If you truly want to sell, list for less than you might have six or nine months ago, not for more.

For real estate agents, the message is a blend: Counsel moderation when a house is listed, and be prepared to advise sellers to lower their asking prices quicker than you might have earlier in the year.

(To see the full PMI data, area by area, visit www.pmigroup.com/newsroom/publications.html.)

Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.