Macro
Welcome to the mortgage-free housing recovery
May 23, 2012: 12:30 PM ETA modest housing recovery is under way, even as bank lending remains tight. But cash buyers won't be enough to turn it into a robust recovery.
FORTUNE – It almost goes without saying that plenty of headwinds weigh on America's troubled housing market. To name a few: A weak job market, Europe's ongoing debt crisis and a persistent excess supply of homes for sale.
But now we can scratch one obstacle off the list (at least for a while) – tighter lending standards.
Many had thought that banks' willingness to lend would be an important aspect of the housing recovery. While that's still the case, it has become less so as cash buyers and investors hunt for properties during one of the cheapest times to buy.
A modest housing recovery is under way, even as lenders demand bigger down payments and higher credit scores. In April, sales of existing homes surged by 3.4% over the same month last year, the National Association of Realtors said Tuesday. Admittedly, the upswing isn't anything to brag about since it follows two previous months of lackluster sales. What's noteworthy is that almost all of April's 4.62 million sales were driven by cash buyers and investors looking to turn properties into rentals, which suggests the recovery can continue even if mortgage lending remains tight, according to Capital Economics.
MORE: When 'Drill Baby Drill' means 'Export Baby Export'
From this time a year ago, sales of existing homes rose by 10% and by 14.1% since the low in July 2011. Mortgage lending has eased over the past year, but only marginally. And despite record-low interest rates, applications for home loans have been relatively flat for the past year, according to data from the Mortgage Banker's Association.
Indeed, the current recovery is unlikely to resemble the rapid bounce-backs of the past. If the healing process continues without many more mortgages, home prices probably won't rise by much, if at all, given that sellers preferring a speedier closing with cash transactions tend to give buyers a modest discount. Nevertheless, such sales will help reduce the glut of vacant homes.
Looser lending standards will need to be part of a more robust recovery, however. If you believe some economists, the healing process will start with more people renting than buying. And eventually the rent would get so high that it makes more sense to buy.
Much of this has already played out, though. During the first three months this year, the U.S. median asking price for rentals rose by 5.6% compared with a year earlier. It's now cheaper to buy a home than rent one in 98 of the 100 largest American cities, according to real estate site Trulia.com. To be sure, new home sales have picked up some. On Wednesday, the Commerce Department reported a 3.3% rise to a seaonally adjusted annual rate of 343,000 in April from March -- a positive development for builders who have struggled to sell relatively new and higher-priced properties
The market is indeed healing, but it will be one slog of a process as long as it's mostly mortgage-free.
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When 'Drill Baby Drill' means 'Export Baby Export'
More U.S. oil production may strengthen our energy security, but don't expect it to lower oil prices as long as demand is high overseas.
By Leah McGrath Goodman
FORTUNE -- Americans are frequently promised that more oil and gas drilling will translate into lower energy prices. In a pre-election advertising push this spring, American Petroleum Institute President and Chief Executive, Jack Gerard, said: "More domestic production is critical to putting MORE
May 23, 2012 11:06 AM ET -
Wake up, Europe! It's time for a real fix.
European leaders have solid ideas on the table to help solve the eurozone crisis, but nothing will work without full fiscal and monetary integration.
By Cyrus Sanati
FORTUNE -- The eurozone crisis is on the verge of spinning out of control. For over two years, European leaders and the European Central Bank have been both unwilling and unable to address the real structural issues that plague the common currency. But with MORE
May 22, 2012 10:23 AM ET -
Even with a High Court win, Obamacare won't work
A new study shows that the basic requirements of President Obama's health care plan have been tried, and failed, in many states in the past two decades.
FORTUNE -- The Obama administration maintains that its Affordable Care Act is a complex construct that's endangered if the Supreme Court finds its central feature -- the requirement that all Americans buy health insurance -- unconstitutional. It's certainly true that eliminating the "individual mandate" MORE
Shawn Tully, senior editor-at-large - May 22, 2012 9:08 AM ETPosted in: Affordable Care Act, Macro -
Maybe Greece needs a run on the banks
Do the Greeks need bitter medicine? Pushing the economically ailing country's banks to the brink might be just what it takes to get austerity measures in place.
FORTUNE -- Bank runs typically spell financial disaster. Any responsible government would try to avoid one, but Greece could turn out to be a special case. If everyone pulled their money out from Greek banks, that might actually save the debt-ridden country from leaving MORE
Nin-Hai Tseng, Writer - May 21, 2012 11:58 AM ETPosted in: Macro -
As student loans grow, so does university leadership pay
Students graduating with mountains of debt this month might want to ask why their university presidents make so much money.
FORTUNE – For all the flak Wall Street gets over excessive pay, it's only fair to take a closer look at compensation at America's universities.
The topic deserves attention, as the rise in student debt forces colleges to confront soaring costs. This week, The New York Times began its series on the MORE
Nin-Hai Tseng, Writer - May 16, 2012 11:42 AM ETPosted in: Macro -
Surprise! No one cares about earnings beats
In the first quarter of 2012, shares of companies that beat earnings expectations achieved a median two-day return of 0%. How's that for a reward?
By Mina Kimes, writer
FORTUNE -- One of the most watched--and least meaningful--financial metrics each quarter is the number of "earnings surprises," or instances in which companies' profits beat analysts' expectations.
The feat is, ironically, completely unsurprising. Over the last three years, an average of 74% of MORE
May 15, 2012 10:30 AM ETPosted in: Macro -
Corporate America's double standard on the deficit
CEOs are pushing Congress to reach a deal on the deficit, but what about corporate America's duty to help fix the economy by hiring more workers?
FORTUNE – It has been well established that America's ballooning deficit is one of the biggest risks for the U.S. economy. Congress tried to take action last year. But as we recall, no deal was struck after a baffling political tug-of-war that nearly sent the MORE
Nin-Hai Tseng, Writer - May 14, 2012 11:54 AM ETPosted in: Macro -
Why it's time for higher interest rates
Progressives, led by Paul Krugman, believe that we can fix our economic woes with more consumer debt and higher inflation. The reality is that near zero interest rates encourage speculation, discourage savings, weaken pension funds, and put millions of baby boomers at risk.
By Sheila Bair
FORTUNE -- In the late 1800's, coal mine barons found no shortage of ways to maximize profits at the expense of their workers. Miners were MORE
May 11, 2012 10:07 AM ETPosted in: Macro, Sheila Bair -
Read between the lines of rising consumer credit
Amid an economy full of imbalances, it's hard to read too much into the consumer credit report that shows Americans are borrowing more.
FORTUNE – U.S. consumers had long been known for their love of credit until the financial crisis changed everything. Credit cards and loans were suddenly out of favor as credit markets tightened and millions saddled with debt lost their homes to foreclosure.
Now the latest data have some suggesting MORE
Nin-Hai Tseng, Writer - May 9, 2012 10:55 AM ET
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| Company | Price | Change | % Change |
|---|---|---|---|
| Bank of America Corp... | 6.90 | -0.08 | -1.14% |
| Dell Inc | 12.37 | -2.71 | -17.97% |
| Ford Motor Co | 10.26 | 0.07 | 0.69% |
| Intel Corp | 25.15 | -0.88 | -3.38% |
| Microsoft Corp | 28.85 | -0.91 | -3.06% |
| Index | Last | Change | % Change |
|---|---|---|---|
| Dow | 12,370.48 | -132.33 | -1.06% |
| Nasdaq | 2,816.81 | -22.27 | -0.78% |
| S&P 500 | 1,304.07 | -12.56 | -0.95% |
| Treasuries | 1.72 | -0.08 | -4.29% |
| Lawmakers looking at Facebook IPO deal | ||
| Investors sue Facebook, Morgan Stanley | ||
| Tech sell-off, Greece worries hit stocks | ||
| HP prepares to announce mass layoffs | ||
| Facebook stock finally posts gains |
