Rate cut will help home market -- a bit

House made of $50 bills.


KAI RYSSDAL: It's not for nothing the stimulus package that was announced this morning bumps up the loan limits for Fannie Mae and Freddie Mac, because real estate's still under the gun. The National Association of Realtors reported this morning sales of existing homes just wrapped up their worst year since 1982. This country's number two homebuilder, Lennar, announced its worst quarterly loss ever at about the same time. It stands to reason this week's fed rate cut will give the housing industry a shot in the arm.

We asked Marketplace's Steve Tripoli to find out for sure.

STEVE TRIPOLI: Nicholas Retsinas, at Harvard's Joint Center for Housing Studies, says the rate cut's certainly not a bad thing.

NICHOLAS RETSINAS: Lower interest rates always help borrowers. The housing market is looking for borrowers.

People whose mortgage payments are adjusting might pay less. That could help them and others hold onto their homes, and more new buyers can join the game. But Retsinas says for many of those folks that only happens if there's money to be had.

RETSINAS: It's not so much how much it costs to borrow, it's whether or not you can get someone to lend to you, and what the rate cut doesn't necessarily do is loosen the tightened credit that we now have -- particularly to first-time home-buyers, particularly to credit-impaired borrowers.

Call it "double bubble trouble." Rate cuts alone have a hard time overcoming both a deflating housing bubble and a deflating credit bubble, because it's hard to help housing if credit's too tight. Thomas Lawler's an independent housing economist. He describes this week's rate cut this way.

THOMAS LAWLER: It's clearly a net positive that will offset a portion of the massive number of negatives.

But Lawler says rate cuts can't bandage all the economy's wounds. He adds the huge inventory of unsold homes to housing's woes.

LAWLER: If you're looking for this drop in interest rates to stop the decline in housing markets where inventories are gargantuanly high and prices still haven't adjusted down to be consistent with income levels, that's a false hope.

So cheer that cut by all means, but don't think it's an express route to any "Promised Land" for housing or the economy.

I'm Steve Tripoli for Marketplace.


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