While Federal Reserve Chairman Alan Greenspan worries how to cool the housing market without damaging the sensitive American economy, the nation's builders may give him a little help by limiting some of the speculative buying that's been happening in "hot" markets.

Industry watchers were stunned by the news released by the National Association of Realtors recently that 23 percent of homebuyers driving record sales in 2004 were investors. Another 13 percent were second home buyers, many of whom intended to rent their properties.

Many investors like the idea of buying new properties, believing that they'll have higher renter demand and fewer maintenance issues, many of which would be covered under builder warranties.

With more than a quarter of home sales attributable to investment, the new housing industry is understandably nervous that a corresponding trend in speculative buying could end abruptly, allowing a substantial "hidden supply" to come back on the market if price appreciation should slow.

Currently, new home inventories are at a 4.2-month supply, which is considered below normal levels, but that could quickly change if investors reacted to slowing price appreciation or higher interest rates. Additional downward pressure would be put on market prices, and sales of new units coming onto the market would be severely disrupted, suggests the NAHB. "Indeed, speculators could not only unload units that they own but also fail to close on units they have contracted to buy -- a key risk in the new-home market because of typically long lags between sales contracts and closings," suggests the NAHB. "Many builders also are concerned about investor-owned units standing empty in new communities they are developing. Large numbers of sold but vacant units can detract from the sense of community as well as the overall look and feel of an area under development."

To find out what builders are doing to avoid endangering their inventories, the National Association of Home Builders conducted a survey of large home builders and builders in "hot" markets across the United States in April.

The results indicated that home builders are taking steps to curb speculative home buying by investors. All members of the large-builder panel, and 89 percent of the builders surveyed in the hot metro markets said they were taking steps to reduce sales to investors.

The Federal Deposit Insurance Corporation (FDIC) recently noted 55 metro areas where price appreciation had reached "boom" proportions by the end of 2004, and mortgage loan data files (from LoanPerformance) show not only an upswing in investor activity nationally but also relatively high shares of investor purchases in many of the "boom" markets identified by the FDIC.

Greenspan recently cited "developments of particular concern" in testimony before the Joint Economic Committee of the Congress related to exotic loan packages that allow many homebuyers to buy with little investment or equity. He said that "speculative activity may have had a greater role in generating the recent price increases than it has customarily had in the past," and he cited a quickened pace of turnover of existing homes as symptomatic of speculative activity.

To limit speculative homebuying, large home builders said they are trying a number of approaches:

• 82 percent said they would sell only to buyers for owner occupancy.

• 64 percent said the buyer cannot sell the home or "nominate" the contract before closing.

• 55 percent said the buyer cannot sell during the first year after purchase.

• 36 percent said the buyer must give the builder the first right to buy back if the home is sold within the first year.

• 36 percent said the home cannot be rented within the first year.

• 36 percent said they were limiting the number of investor sales per lot release.

• 27 percent said they would not provide sales incentives to investors.

• 18 percent said they would not sell more than one home to buyers with the same last names.

• 18 percent used a variety of other measures, including charging a fee (often $50,000) if homes are resold within the first year.

The limitations appear to come just in time. In May, following the survey of the builders, the U.S. Commerce Department reported new home sales of new single-family homes continued at a near-record pace, 4.4 percent higher than April last year, and only one percent behind the all-time record pace set in October 2004.