(Agencies)
Updated: 2007-12-07 15:43

"The intensifying housing recession is expected to weigh on the broader economy, but not break it," the report said.

The Moody's Economy.com's report, titled "Aftershock: Housing in the Wake of the Mortgage Meltdown," said that when house prices hit their nadir, some 80 of the nation's 381 metropolitan areas will experience a double-digit peak-to-trough price decline.

Price declines, however, will vary in degree throughout the nation, with more than a 15 percent peak-to-trough expected around Washington and Detroit.

Significant declines are also expected throughout most of Arizona, California, Florida and Nevada. During the housing market's heyday, speculative activity was rampant in these areas, causing prices to surge much higher than other regions.

The Northeast corridor, and markets such as Boise, Idaho, along with Denver and Salt Lake City, will experience between 5 percent and 15 percent declines. In the rest of the industrial Midwest and parts of the Mountain and Pacific Northwest, prices will fall more modestly.

While some point to rising default rates in the subprime mortgage market, which caters to borrowers with poor credit histories, as the root cause of the problems plaguing the housing market, Moody's Economy.com said an unwieldy supply of unsold homes is the prime factor.

The US Census Bureau said that, as of the third quarter of 2007, there were close to 2.1 million vacant unsold homes for sale, equal to 2.6 percent of the stock of owner-occupied homes.

A well-functioning housing market has a substantial amount of inventory, but in the quarter century between the early 1980s and mid-2000s, the vacancy rate stayed near 1.7 percent.

The difference between the two vacancy rates provides a good estimate of the amount of excess inventory in the market, which currently totals nearly 750,000 homes and is by far the highest level of excess inventory in the post-World War II period, Moody's Economy.com said.

Moody's Economy.com, which is based in West Chester, Pennsylvania, is an independent subsidiary of Moody's Corp and provides economic research and consulting services to businesses, governments and other institutions.

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