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What's Behind Housing Slump? Blame the Speculators

Tuesday, 27 Feb 2007 | 1:04 PM ET

If you're worried about the housing market, well, it may be even worse than you suspect. Two economists joined "Morning Call" to discuss the possibility that unseen factors may delay a recovery.

Wachovia's Chief Economist John Silvia believes that many supposed sellers throw off housing statistics by putting their homes on the block merely "to find out what's going on" --then withdrawing their home from the market after learning the hard facts of disappointing demand and prices.

Silvia also pointed to regulators "getting tough" on high-risk subprime lenders, adding weight to the correction in the mortgage market -- and one of several stimuli that will prolong housing's return to health.

Hidden Housing Inventory
Existing home sales are up, but they don't include the hidden housing inventory - homes taken off the market because of the downturn. John Silvia, Wachovia chief economist; Thomas Higgins, Payden & Rygel chief economist; and CNBC's Mark Haines discuss the topic.

Thomas Higgins, Payden & Rigel's chief economist, says the moribund market has "more to do with speculators" retreating, and quotes the 2006 U.S. census as showing "lots of vacant homes."

He said that the "deteriorating" subprime situation will be relatively contained, but noted the drag of "secondary impacts" from a credit crunch, including lower white-goods orders.