Encouraging Data Lifts Stocks

Better-than-expected reports on home building and jobs put stock indexes on track for their first weekly gain in a month and a half.

The pace of construction of new homes quickened last month, the government said Thursday. And the number of people who applied for unemployment benefits fell last week to 414,000, more of an improvement than economists expected. Weekly applications for unemployment have been over 400,000 since April, a rate that suggests job growth is still slow.

Home Depot Inc. rose 2.3 percent, the most of the 30 stocks that make up the Dow, following the better than expected report on home construction and an upgrade by analysts. Kroger Co. rose 4.6 percent after the supermarket chain's earnings rose as shoppers paid more for groceries and gas.

Not all the economic news was positive, however. A survey by the Federal Reserve Bank of Philadelphia found that manufacturing slowed in that region, one day after a similar report found that manufacturing was slowing in the New York area. A series of weaker economic indicators over the past two months have led some analysts to trim their expectations for the year.

Investors are now starting to expect negative economic news, said Uri Landesdman, president of Platinum Partners, an investment manager in New York. That dulls the impact of each downward sign, he said.

"There's still a feeling out there that even though economic data has been incrementally terrible, businesses are still cooking," Landesman said. He also cautioned that the market could continue to slide until the next batch of corporate earnings reports, which start to come out in mid-July.

Overseas markets dipped for a second day because of fears that Greece will be forced to default on its bonds, an event that could trigger another financial crisis. The Euro Stoxx 50, an index of blue chip companies in countries that use the euro, fell 0.5 percent. Benchmark indexes in Japan and China each closed with losses of more than 1.5 percent.

U.S. stocks have fallen for six straight weeks because of rising concerns that the economy isn't as strong as previously thought. High gas prices and a recession in Japan following its earthquake and nuclear disaster have combined to slow business and consumer spending. The S&P index is down nearly 7 percent since hitting its high for the year on April 29.

The Dow and S&P 500 are both up slightly for the week, while the Nasdaq is down 0.2 percent.

Mortgage Rates Flat after Hitting Yearly Low

Fixed mortgage rates stayed roughly flat after falling for eight weeks.

The average rate on the 30-year loan ticked up from a yearly low of 4.49 percent to 4.50 percent, Freddie Mac said Thursday. The average rate on the 15-year fixed mortgage, a popular refinance option, fell to 3.67 percent from 3.68 percent. That's a low for the year.

Rates tend to track the yield on the 10-year Treasury note. The 10-year yield has been dropping as fears over that economic recovery is slowing.

Most people can't take advantage of the low mortgage rates because they can't meet tougher lending requirements. And many who could afford to refinance likely did so last year, when rates fell to their lowest levels in decades.

Sales of new and previously occupied homes rose in April. But sales are well below healthy levels as waves of foreclosures have pushed prices down. Many would-be buyers are holding off, worried that prices have yet to bottom out.

And prices are expected to keep falling until the glut of foreclosures for sale is reduced, companies start hiring in greater numbers, banks ease up on their tougher lending rules and more people think it makes sense to buy a house again. In some areas of the country, that could take years.

To calculate average mortgage rates, Freddie Mac collects rates from lenders across the country on Monday through Wednesday of each week. Rates often fluctuate significantly, even within a single day.

The average rate on a five-year adjustable rate mortgage inched down to 3.27 percent from 3.28 percent last week. It hit 3.25 percent in April, the lowest on records dating back to 2005.

The average rate on a one-year adjustable-rate loan rose to 2.97 percent from 2.95 percent, which was the lowest on records going back to 1986.

The rates do not include add-on fees, known as points. One point is equal to 1 percent of the total loan amount. The average fees were 0.7 for both the 30-year and 15-year fixed loan in Freddie Mac's survey. The average fee for the five-year ARM was 0.6 and the one-year ARM was 0.5.

4 Ways to Fix the Housing Market

According to experts, a variety of factors could be key to dragging the housing market out of the doldrums: improved economic fortunes, greater assistance to indebted homeowners, and simple patience may be necessary to remove this heavy weight on the economic recovery. Here are six ways that could help speed the recovery of the U.S. housing market.

Trim the Fat

Earlier this month, Federal Reserve Vice Chairman Janet Yellen told an audience at the Cleveland Federal Reserve Bank that housing recovery would take time. She elaborated, "Even once it begins to take hold, recovery in the housing market likely will be a long, drawn-out process." Even with fixes to the rest of the economy, some economists estimate that full recovery will take as long as five years.

One reason behind that long recovery period is the excess of vacant homes on the market. Even once credit is freed up enough for would-be buyers to begin house-hunting in earnest, the market will have to be cleared of those empty properties before home-building can pick up again. Shrinking the oversized supply of housing will also better allow housing prices to increase, so current owners will be more able and willing to sell their homes.

Depend on Uncle Sam

Mark Zandi, chief economist at Moody's Analytics, believes that in the long run, less government involvement in mortgages could be a good thing, but that the already-fragile housing market is not ready for the government to substantially reduce its influence. "I don't think that [decreased loan limits are] a bad idea, longer-run. In fact, it's a good way to try to get the government out of mortgage market, at least to start extricating itself from the mortgage market," says Zandi. "But it's probably premature to do that on October 1."

Keep Bailing

Since the government gave billions of dollars to troubled financial institutions in 2008, "bailout" has become a dirty word in American politics. This fix involves bailouts not to large financial institutions, however, but rather to troubled homeowners. Zandi specifically proposes expanding home-loan modification efforts to modify the principal amounts that some homeowners owe. He explains that reducing principal amounts for homeowners who are underwater could "give them a stake in their home again so they don't default." However, he recognizes that identifying homeowners who would be good candidates for such modifications would be difficult.

Look to the Future

Avoiding similar crises in the future means ensuring that neither individuals nor banks are so exposed to real estate risk as they were during the housing boom. One measure advocated is to have "preplanned workouts" built into mortgages, providing homeowners with an agreed-upon way to modify their terms. This is one lesson that the United States can learn from the government's HAMP. The solution is to allow banks to make these modifications a part of their business models.