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Fed Cut to Help Housing Market? Don't Bet On It

Real estate signs posted at a housing complex in Walnut Creek, Calif., Saturday, Aug. 5, 2006. Home sales kept falling in July in Northern California along with the appreciation rate of prices, a real estate research firm reported Wednesday.  (AP Photo/Paul Sakuma)
Paul Sakuma
Real estate signs posted at a housing complex in Walnut Creek, Calif., Saturday, Aug. 5, 2006. Home sales kept falling in July in Northern California along with the appreciation rate of prices, a real estate research firm reported Wednesday. (AP Photo/Paul Sakuma)

Susan Wachter, a professor of real estate and finance at the Wharton Business School, told CNBC’s “Power Lunch” that the Federal Reserve won’t cut rates in an effort to help the troubled housing market.

“I think the Federal Reserve is between a rock and a hard place,” she said Tuesday. “The Fed might actually tighten but for the housing market.”

David Blitzer, managing director and chairman of the S&P 500 Index Committee, said the Federal Reserve considers the entire economy –- not just one sector -– when adjusting interest rates.

“I think we forget that the Fed is looking at a lot more than the housing market,” Blitzer said. “It’s looking at the entire U.S. economy, of which housing is an important part and more-volatile-than-average part, but certainly not the whole thing.”

Joel Naroff, chief economist at Commerce Bank, said the housing market has yet to hit bottom.

“I think the financial firms are going to do their best to make sure they don’t foreclose on too many homes, because they’d have to dump them into the market, and that’s going to have some price impacts,” Naroff said. “The key to this market is going to be the pricing.”

The Commerce Department reported Tuesday that U.S. home construction rose 9% in February to an annual pace of 1.525 million units, compared with a 1.399 million unit pace in January. It was the sharpest month-over-month increase since a 13.1% rise in January 2006.

But building permits, a gauge of future construction activity, fell 2.5% to 1.532 million units. Analysts believe builders want to sell existing inventory before building new houses. This will eventually lead to higher prices in the industry.

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  • Sue Herera is a founding member of CNBC, helping to launch the network in 1989. She is co-anchor of "Power Lunch."

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