Realtors listing houses usually increase the asking price to 20% over what the assessed value is so that when you think you are lowballing them, you are actually giving them market value. I believe fair market would be 40% less than what realtors are listing them for.
Just look at the rest of these answers on this page. Every Realtor who has a chance at financial gain, on the selling price of the property will want the selling price to be as high as possible.
To be sure that you are not overpaying, goto the assessment site and click on the sale date of the property. You can rest assure that anyone who bought their house in the last 5 years overpaid and will want to pass that on to you. I follow many neighborhoods and there are so many stagnant houses out there that have been listed for years! The houses get marked sold and just get relisted months later, always at lower prices.
Another way to see if your overpaying is to see what they house would rent for. That rent is what the mortgage price should be on the house, plus the 20% down should be. Its amazing when you look at what some houses require in a mortgage payment , but the rental price is 2 to 3 times lower. It doesnt make sense to buy the house (unless you assume that real estate always goes up. Yes im sure I've heard that before.)
Give it 2 to 3 more years and let the people that should never had bought houses, get weeded out. All they wanted to do was ride the equity increase in the market. Now, let their ARM mortgages reset and let them keep making payments until they run out of money and are forced to sell. Keep saving your cash to use for a bigger downpayment later.
Also dont forget, when the interest rates are at the lowest they are ever going to be, it doesnt make sense to buy because you will never be able to refinance at a lower price. The rates will only go up from here and in turn they will lower house prices because the higher rates will make mortgaging the same amount of money less affordable.