Off the Charts: Investors in Europe See a Glass Half Full and Rising

Or at least investors seem to believe they are.

A survey of investor sentiment in the euro zone this month moved into positive territory for the first time since the summer of 2011. European stocks have been rising for more than a year, with bank stocks leading the way. The yields on Spanish and Italian government bonds — which were more than five percentage points higher than German bonds’ last summer — now have spreads half that level.

It was last summer that the European Central Bank took steps to get needed cash into the hands of banks, ending the immediate fears of a collapse of the euro zone. But much remains to be done.

The German elections next weekend have delayed a lot of decisions. The widespread assumption is that Angela Merkel will remain chancellor, but it is not clear if the current coalition with the Free Democrats will be able to survive. If not, she may have to turn to the opposition Social Democrats and try to form a grand coalition.

There is also wide speculation about the health of European banks. In the summer of 2012, the European Central Bank took steps to provide low-cost loans to banks to buy bonds issued by their own governments, and some did, particularly in Italy and Spain.

When there are new stress tests next year — conducted for the first time in the same way in all countries across the euro zone — some analysts fear that banks may be forced to hold more capital if they have such bonds. Conceivably, such a requirement may lead the banks to sell such bonds, driving prices down and yields up and damaging the confidence that has been growing.

But none of that has so far held back investor enthusiasm. An index of European bank stocks, shown in the accompanying chart, is up by almost half since the end of 2011, although it remains more than 60 percent below its 2007 peak.

The Sentix measure of investor confidence in the euro countries climbed into positive territory this month for the first time since 2011, and it did so largely because of optimism for the future. The measure is based on questions asked of investors, and it now finds institutional investors more confident than retail investors.

Sentiment regarding current conditions has risen, but it is still negative, according to the survey. But when investors were asked about conditions six months from now, the level of optimism has risen to the highest level since the spring of 2006, well before the recession.

It may be noted that all this enthusiasm has come despite continuing declines in gross domestic product in many countries in the zone, and despite high levels of unemployment. To some extent, it no doubt both reflects the improvements in the stock and bond markets and is a cause of them.

Does all this show foolish complacency? Or does it reflect an awareness that the worst is over for the peripheral countries in the euro zone, with recovery on the horizon? By next summer, we may have the answer.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

This article has been revised to reflect the following correction:

Correction: September 14, 2013

An earlier version of this article incorrectly identified the German party that formed a coalition with the Christian Democrats, Angela Merkel’s party. The coalition is with the Free Democrats, not the Liberal Democrats.

Prices Are Rising for New Homes, and the Land They Are Built On

Already, developers report that the cost of land in the most desirable areas is double what it was two years ago. At least three golf courses in the Minneapolis-St. Paul area are being carved into millions of dollars’ worth of residential lots. The race has even sent builders back to outer suburbs like Otsego, 30 miles from downtown Minneapolis, where bulldozers are laying the groundwork for four-bedroom houses with three-car garages, in subdivisions bordered by cornfields.

“Lot buyers and sellers!!!!!!!!” Mr. Felix’s Web site reads. “It is time to get moving again....!”

Or past time. The latest land rush is in full swing, as developers realize that they have failed to feed the zoning, permitting and mapping pipeline, which can take months or years to turn raw fields into buildable lots. They are realizing another thing, too: they have been sorely missed.

“For the first time, I’ve seen cities want to work to help figure it out, rather than doing us a favor all the time to let us develop,” said Scott Carlston of Hunter Emerson, a development partnership. Hunter Emerson won a victory when the city of Eagan, a suburb of Minneapolis, allowed Parkview Golf Club to be converted into a high-end single-family subdivision.

The hunt for dirt is not limited to the Twin Cities. After builders across the country spent decades feeding acre after acre of raw land into the maw of demand for single-family homes, the housing crash left them with a land surplus so large that lots were selling for pennies on the dollar. At the peak of supply, in 2009, there were enough lots to last almost eight years, according to MetroStudy, a firm that tracks housing data. Now there is less than four year’s worth, and only about a quarter of that is in the more desirable A- or B-rated locations.

“We have gone from a situation where five years ago everyone was saying, ‘There’s too many lots,’ to today, builders are literally crying on our shoulder saying, ‘There’s not enough lots. We can’t find any,’” said Bradley F. Hunter, the chief economist at MetroStudy.

The shortage of lots is slowing the housing recovery, the National Association of Home Builders said last week. In August, 59 percent of builders surveyed said lot supply was low or very low, the association said. Housing is a critical driver for the economy, not just because of the jobs and supplies needed to build homes but also the appliances and furnishings that new occupants buy.

At the peak of the housing boom, builders were finishing more than 1.6 million single-family houses a year. That number plunged to less than half a million during the recession. This year, the industry is on track to complete more than 570,000 homes, still substantially below the level considered necessary to replace aging homes and provide for new households. A return to more normal rates of construction would substantially lift the economy’s anemic growth rate of about 2 percent over the last year.

Mr. Carlston said some cities in the Twin Cities area had adjusted their rules to allow fewer parking spaces or smaller lots. Otsego has lowered some of its development fees and allowed a developer to change an approved plan so that a partly built town house project could be finished with more salable detached homes. Rick Packer, a land development manager for Centra Homes, said some suburbs were relaxing requirements that homes be made of brick or stucco.

Even the Sierra Club, which once placed Minneapolis among the top 10 sprawl-threatened cities, has backed off a bit. An annual bike ride by the local chapter, once known as the “Tour de Sprawl,” has been given a less pejorative name and refocused to include not just threatened green space but what the group considers model development and transportation projects.

Mayor Mike Maguire of Eagan, a co-chairman of the Regional Council of Mayors Housing Initiative, said one reason his city had approved a land use change for the golf course was that so little new housing was built in the last few years. “When there’s no new development, you have stock that’s increasingly out of date and that tends to bring your home values down,” he said. “That was one of the things we were hearing back from Realtors, was they had people who wanted to move to Eagan but couldn’t find the home they wanted.”

Last year, Hunter Emerson agreed to pay $8.6 million for the golf course, wagering that the city would approve the land use change. The partnership sold the property to a national home builder for $13.1 million, Mr. Carlston said. The houses will cost from $400,000 to $700,000, he said.

The excess left from the boom — land in various stages of development ranging from untouched to what builders call PVC farms, named for the hard plastic plumbing pipes that, with electrical lines, were virtually all that was on the lots — is quickly being absorbed. Developers have gone from buying foreclosed acreage from banks to buying from farmers, family trusts, manufacturers and even homeowners with outdated homes on single lots.

“What we’ve seen is the inner ring of the suburbs, all those areas have come back,” said Rod Just of Key Land Homes, a Twin Cities builder. “The outer ring, they’ve taken just a little bit longer because of gas prices, but they’re going to come back.”

For builders, there is even a sense of déjà vu. “The new lots that are coming out,” Mr. Just said, “are almost the prices that they were in 2005 when everything crashed.”

New Laws and Rising Costs Create a Surge of Supersizing Hospitals

The consolidations are being driven by a confluence of powerful forces, not least of which is President Obama’s signature health care law, the Affordable Care Act. That law, many experts say, is transforming the economics of health care and pushing a growing number of hospitals into the arms of suitors.

The changes are unfolding with remarkable speed. Two big for-profit hospital chains, Community Health Systems of Tennessee and Health Management Associates of Florida, are combining in a $7.6 billion deal.

In New York City, Mount Sinai Medical Center, which is one of the country’s oldest and largest private nonprofit hospitals, is buying the parent of Beth Israel Medical Center and St. Luke’s and Roosevelt Hospitals. Tenet Healthcare of Dallas, which operates in 10 states, is buying Vanguard Health Systems of Nashville, a network of 28 hospitals and facilities that includes Detroit Medical Center.

In fact, Booz & Company, a consulting firm, predicts that 1,000 of the nation’s roughly 5,000 hospitals could seek out mergers in the next five to seven years.

“There’s immense logic for them to become large super-regional systems, even some national systems,” said David W. Johnson, a managing director for BMO Capital Markets, which advises nonprofit health systems. Some chains are merging to increase their size and their negotiating clout with insurers, while others are trying to reduce costs and improve care, he said.

Some economists and health insurance companies worry that the trend could raise health care costs.

“The rhetoric is all about efficiency,” said Karen Ignagni, the chief executive of America’s Health Insurance Plans, a trade group that represents insurers. “The reality is all about higher prices.”

Whatever the outcome, hospitals are merging faster and in greater numbers than they have in years. After holding steady through much of the 2000s, the number of deals doubled to 105 in 2012 from 50 in 2009, according to Irving Levin Associates, a health care research firm. That is still less than half the annual peak during the last merger wave, in the late 1990s, but Booz and others say this is only the beginning.

Hospital executives say they have little choice but to combine given the coming changes in the industry. Many hospitals are struggling with lower payments from the federal government and declining patient admissions. They are also being confronted with fundamental changes in how they are paid under the Affordable Care Act and by private insurers.

Instead of being paid on volume, rewarded for filling beds and performing more tests and procedures, hospitals are becoming responsible for more of the total cost of a patient’s care. As a result, they have an incentive to keep patients healthy — and out of their facilities.

By combining, hospitals can reduce costs in back-office activities like billing and devote more financial resources to investing in expensive electronic medical records systems and physician practices to better follow patients outside the hospital. Under the new state exchanges created by the federal health care law, consumers will be able to tell the difference in hospital prices between markets that have consolidated and those that have not, Ms. Ignagni said.

The plans have similar designs, but a policy offered by the same insurer in, for instance, Northern California, where hospitals have merged, will be more expensive than one offered in Southern California, where the systems are smaller, she said.

Federal regulators are concerned that the growing number of mergers could lead to anticompetitive practices. The Federal Trade Commission has increased its examination of the deals and has blocked a handful of transactions.

Rising Price Index Hints at Rebound in Japan

TOKYO — Japanese consumer prices rose in June at their highest annual pace in nearly five years in an early sign of an end to persistent deflation, boding well for the central bank’s bold stimulus plan to achieve its 2 percent inflation target in two years.

The 0.4 percent rise in core consumer prices, which is slightly higher than a median market forecast for a 0.3 percent increase, was largely because of a rise in electricity bills and a weak yen that inflated the cost of gasoline imports.

But it is an encouraging sign for the Bank of Japan, eager to end 15 years of grinding deflation, because it suggests that more companies are optimistic enough about the economy to believe they can raise prices or at least not cut them.

The data is also a boost to Prime Minister Shinzo Abe’s sweeping pro-growth policies that aim to pull the world’s third largest economy out of stagnation.

Mr. Abe’s government, which is driving an aggressive policy mix of monetary and fiscal stimulus to foster sustainable long-term growth, has already seen positive signs as first-quarter data showed Japan was the fastest-growing major economy in the world.

The increase in the core consumer price index, which excludes fresh food but includes energy costs, was the highest annual pace since a 1 percent rise in November 2008. It is the first time in 14 months that consumer prices have risen. (In May, prices neither rose nor fell.)

Tokyo core C.P.I., a leading indicator of nationwide prices, rose 0.3 percent in July after a 0.2 percent increase in June, matching the median forecast, suggesting prices will continue to rise in the coming months.

The Bank of Japan unleashed an intense burst of monetary stimulus on April 4, promising to double the supply of money through aggressive asset purchases to meet its 2 percent inflation target in roughly two years.

Many analysts expect prices to gradually rise, reflecting improvements in the economy, but they view the two-year time frame for achieving the inflation goal as too ambitious.

DealBook: JPMorgan and Wells Fargo Feel First Chill of Rising Interest Rates

Leslye Davis/The New York TimesJPMorgan’s profit on mortgages fell 14 percent in the last quarter.

Even as two of the nation’s largest banks reported record profits on Friday, beneath the rosy earnings were signs that a sharp uptick in interest rates could spell trouble ahead for Wall Street and the broader housing market.

Kicking off bank earnings season, JPMorgan Chase and Wells Fargo handily beat analysts’ expectations. Profit at JPMorgan surged 31 percent, bolstered by gains in the bank’s trading and investment banking business. Wells Fargo, the biggest home lender in the country, posted a 19 percent increase in its second-quarter profit.

The gains were spread across the banks except for one important source: mortgage banking. The results showed that refinancing activity slowed, as did demand for mortgage loans.

The results could worsen. If rates continue to rise, fewer borrowers are likely to refinance or buy a house. And if the mortgage bond market weakens, banks will take a smaller gain when selling the mortgages.

While these concerns have loomed for months, the earnings on Friday offered the clearest picture yet of how the interest rate turmoil could affect the banks, whose fortunes hinge in part on their lending businesses.

“We’re trying to be clear with you that this would be a significant event,” Marianne Lake, JPMorgan’s chief financial officer, said on Friday, referring to the potential effect of rising rates on the industry. She cautioned analysts that the volumes of mortgage refinancing could plunge by an “estimated 30 percent to 40 percent” in the second half of this year.

The results from JPMorgan and Wells are a barometer for the housing market because the two banks together account for the majority of all mortgages in the United States. In recent years, the recovery in the market has fueled the earnings of both companies and has also played a significant role in the broader economic rebound.

Mark Lennihan/Associated PressJohn Stumpf, chief of Wells Fargo, noted that higher rates reflected a mending economy. “I’ll take that trade all day,” he said.

Until now, the banks have benefited from government policies intended to stimulate the economy in the wake of the financial crisis. As the Federal Reserve cut interest rates in recent years, for example, it spurred millions of borrowers to refinance their home loans to take advantage of the lower costs.

But the Fed has signaled in recent weeks that it could ease its stimulus as the economy continues to recover. The warning has prompted investors to drive up interest rates around the globe. Since Fed officials first hinted that they might retreat, the rate for a 30-year fixed mortgage has risen to 4.78 percent from a low of 3.54 percent.

The banks’ second-quarter results show the early results of the sudden surge. In the second quarter, Wells Fargo received $146 billion worth of quarterly home loan applications, down from $208 billion in the period a year earlier. Its mortgage originations totaled $112 billion, down from $131 billion.

At JPMorgan, mortgage originations rose 12 percent in the quarter, to $49 billion, but overall profit in mortgage banking fell by 14 percent, to $1.1 billion.

On Friday, JPMorgan executives said the slowdown could be even more extreme than previous forecasts have suggested. While both banks might be able to seize on the uptick in interest rates to create a bigger spread between the income they derive from lending and the ultimate cost of borrowing, those benefits proved elusive.

Net interest margin, a critical measure that reveals how much profit banks earn on their loans, fell at JPMorgan, settling in at 2.60 percent for the quarter, from 2.83 percent in the previous quarter. At Wells Fargo, it was 3.46 percent, down from 3.48 percent in the first quarter.

The results suggested that the surge in interest rates came too late in the second quarter to significantly affect the banks, but that the increase could cause deeper problems in the second half of the year.

Christopher Whalen, an investor and housing market analyst at Carrington Investment Services, said that the numbers that Wells and JPMorgan presented were a “very big deal.”

“Everybody in the mortgage industry is going to have to reassess their view of this year and next,” Mr. Whalen said.

Rising rates, though, might help other parts of the banks’ business. Within its fixed-income trading operations, for example, JPMorgan reported an 18 percent increase in revenue. Fees in JPMorgan’s investment banking unit surged 38 percent, to $1.7 billion.

Wells Fargo executives played down the significance of the rate change, noting that mortgage rates were still extremely low by historical standards. John Stumpf, the bank’s chief executive, pointed to the interest he paid for his own mortgages.

“If you were in the mortgage market before 2000, you know that these are unbelievably good rates,” Mr. Stumpf said. “My first mortgage was at 8.5 percent. My second one was at 11.5 percent, and I thought those were great rates at those times.”

Mr. Stumpf noted that the uptick in rates stemmed from the Fed’s indication that the economy was improving. Housing prices are rising and demand for homes has soared.

As the improvements continue, he said, a growth in loans for new home purchases will more than make up for any losses in refinancing.

“I’ll take that trade all day,” Mr. Stumpf said. “It’s good for America, it’s good for the economy and in the long term, it’s good for our business.”

Wells’s overall loan portfolio, which includes commercial and consumer lending, actually rose 3 percent to $802 billion in the second quarter. A bump in credit cards and commercial lending — and record origination of auto loans — further offset the home loan slowdown. The bank’s total average deposits reached $1 trillion, up 9 percent from a year ago.

But important drivers of the returns at Wells Fargo and JPMorgan did not stem from substantial growth in the underlying businesses. Instead, they came from reduced expenses.

Wells Fargo, for example, reduced a crucial expense — building a reserve for bad loans. This move reflected improvements in the quality of loans.

In the second quarter, JPMorgan also lifted its profits by reducing loan-loss reserves by $1.5 billion. The bank defended the practice, saying it pointed to the improving condition of its loans.

Yet Jamie Dimon, JPMorgan’s chief executive, conceded that fresh loan growth was still “soft.”

Nathaniel Popper contributed reporting.