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Housing Market May Not Be as Healthy as It Appears

Despite mounting evidence to the contrary, the housing market is "not going to gain momentum" this year, the chief economist for the National Association of Home Builders told CNBC on Wednesday.

"I mean that we will continue to grow," David Crowe said in a "Squawk Box" interview. "But you can't quite get that spark going until you solve some of the other problems that are still out there."

But this week's housing numbers painted a different picture. Contracts to buy existing homes, sales of new homes and U.S. consumer confidence overall surged in January.

(Read More: Pending Home Sales Soar Despite Rough Winter)

The S&P/Case Shiller composite index of 20 metropolitan areas registered its biggest increase in home prices in December since July of 2006—just before the bottom began to fall out of the U.S. housing market.

Crowe made his case by pointing to three problem areas. He said it's still difficult for buyers to get a mortgage; many home appraisals are coming in lower than the asking prices; and conventional housing inventory is facing price competition from foreclosures and short sales.

Jed Kolko, chief economist for the real estate website Trulia, was also a bit cautious, citing the relationship between job growth and housing.

"There are actually two different types of recoveries going on right now," he said. "In some markets, a lot of that price growth isn't driven by job growth. It's driven by investors." Institutional and private investors alike have been scooping up single-family homes all over the country to flip or to fix up and rent.

Kolko warned that strength in places like Phoenix and Detroit may not last. "[But] other places like San Francisco, like Denver, we've seen both strong job growth and strong price growth. And that's where the recovery looks more sustainable."

Rising home prices will also ease the tight inventory, he said.

"We'll see more new construction as builders jump into more markets," he added. "[And] more homeowners will decide to sell—especially those who have been underwater until now."

(Read More: Homeowners Rise Above Water on Mortgages)

Mortgage Deduction Changes?

Meanwhile, debate over possibly changing or eliminating the home-mortgage interest tax deduction is front and center in Washington with Friday's deadline looming for the across-the-board government spending cuts.

"There are other ways to address budget deficits without attacking tax advantages to homeownership," NAHB's Crowe argued. "We would fight it to the tooth and nail."

Modifying the mortgage deduction was a key tenet of the 2010 Simpson-Bowles deficit reduction plan. It's still being bandied about as President Barack Obama demands the closure of some tax loopholes and deductions in any deal to replace the "sequester" spending cuts.

(Read More: Which Tax Deductions Are Most Likely to Go?)

If the mortgage deduction cap were reduced, Crowe said, "almost all of that pain" would come from the high-end housing market. "You would hurt the markets in California and along East Coast, and virtually no one else."

By CNBC's Matthew J. Belvedere; Follow him on Twitter @Matt_SquawkCNBC. Reuters also contributed to this report.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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