Dive summary:

• The 2012 housing-price recovery has legs in many states when compared with income and employment improvements, but some states and the District of Columbia appear to be overvalued in the estimate of Capital Economics.
• The states whose prices rose 7% or more when the national average was 4% for the first three quarters of 2012 were Arizona, California, Florida, Idaho, Nevada, North Dakota and Utah – along with the District of Columbia.
• The economists said they were most concerned about Arizona (20% price recovery) and Nevada (12%) because their overall economies had not come close to those numbers, and they said they had some concern about Washington, D.C., because of possible federal furloughs or layoffs.

From the article:

Despite concerns that the housing recovery is investor-fueled and unsustainable, Capital Economics is confident that market fundamentals are reflective of a long-term, sustainable recovery. ...