Fed rate cut no quick cure for housing mess

Still, the Fed’s willingness to cut rates for the first time in four years may have helped prevent a further slide.

“We have a housing recession,” said Susan Wachter, a real estate professor at the Wharton School of Business. “This stops a housing depression.”

The move is also aimed at preventing the problems in the housing industry from broadening into a wider economic recession. Consumer spending, buoyed for years by the rapid rise in home prices, has begun to cool off.

Though auto sales have held up relatively well, that’s because fleet sales to corporations and rental car companies have offset weakness in consumer spending on cars, according to Michael Jackson, CEO of AutoNation, one of the country's largest car dealers.

“Once everybody figures out that the consumer has pulled back on big-ticket items, that brings the risk of recession into play,” he said. “I think that's what the Federal Reserve sees.”

Tuesday’s cut — double the quarter-point that many Fed watchers had expected — is a sign that Fed Chairman Ben Bernanke “understands that there is a psychological downward spiral, that a quarter-point wouldn’t break that downward spiral, and that it would take something like a half a point to do it," said Jackson.

But homeowners facing foreclosure will likely see little benefit from the Fed’s move. Many are already behind on adjustable mortgages that have reset from initial low “teaser” rates. The roughly 2 million homeowners who face resets this year and next will still see substantial jumps in their monthly payments. Borrowers who are locked into loans they can’t afford because of steep “prepayment” penalties won’t be helped by the Fed’s move.

And shoppers for new mortgages won’t catch much of a break. While short-term rates have moved lower as a result of the Fed’s cut, the market-based long-term rates that are used to price mortgages edged higher.

A lot depends on the Fed’s next move. In announcing the rate cut, the policymakers said they were keeping a watchful eye on inflation — which lower rates could make worse. Though the latest round of monthly data showed prices were fairly well in check, a recent jump in oil prices could erase those gains in the Fed’s fight to keep prices stable.

Stuart Hoffman, chief economist at PNC Financial Group, is in the camp that believes the short-term federal funds rate is headed as low as 4.25 percent by late this year or early next.

“They did start out boldly, but what really matters is the cumulative impact,” he said. “Much like you take an antibiotic, you are not going to feel better overnight. You are going to have to take a couple more doses, and I think this is just the first.”

Don't miss this on MSNBC.com Pass it on: Sons of infertile men may be next The eight biggest Olympic marketing debacles TV dead pool: Which shows should go? Cosmic Log: Is this your jetpack? Century after first fatality, safety is in the air

MORE FROM EYE ON THE ECONOMY

Eye on the Economy Section Front

Fear trumps efforts to solve crisis Treasury plan to buy bank stakes carries risks Amid crisis, states forced to take ‘drastic action’ Global rate cut does little to calm markets Economists getting gloomier about outlook How massive bailout plan will affect you Economists say rescue plan still needs work Rescue package still faces House hurdles Bailout deal nears, but will it work? Bailout plan sparks wide debate in Congress Eye on the Economy Section Front   Add Eye on the Economy headlines to your news reader: