report" with tyler mathisen and susie gharib. brought to you in part by -- >> the street.com. founded by jim cramer, the street.com is an independent source for stock market analysis. cramer's action alerts plus service is home to his multimillion dollar portfolio. you can learn more at the street.com/nbr. mixed signals. new home sales surge while application for mortgages drop. ivy zelman the analyst who called housing's top and bottom makes sense of the conflicting data for us. a penny for your thoughts. j.c. penney reports a smaller loss than expected and says sales will improve. but have investors already lost faith in the company's turn around? so what's at risk in the third part of our health care series tonight, could taxpayers be on the hook if the new

federal insurance co-ops do not work out as planned? all that and more tonight on "nightly business report" for wednesday, february 26th. good evening, everyone. i'm gill griffith. tyler is off tonight. >> and i'm susie gharib. good evening from me as well. well, you may not know by looking out your window or at the calendar, but the all important spring housing season has already begun. and today we got conflicting and divergent signals about the direction of the u.s. housing market. sales of new homes in january unexpectedly shot up by nearly 10%, reaching the fastest sales pace in five years. at the same time, mortgage applications last week fell almost 9%. that's the lowest level in two decades. so how do investors make sense of the data? which way is housing headed? and what does it mean for home buyers and sellers? diana olick reports. >> reporter: it was last spring in an interview on cnbc that housing guru ivy zelman uttered

these fateful words. >> i think we're in nirvana for housing. >> now after a sharp turn around in sales of both new and existing homes, zelman explained her thinking. >> i think nirvana took a pause during that time home prices were surging and we had very attractive affordability. a few months after i was on we had rates spike about 100 plus basis points and we saw a pause. the consumer was rationally respond together surge in prices, the backup in rates. >> reporter: now reports this week show home prices were up over 11% in 2013 from 2012. that and higher mortgage rates are making housing a far more expensive proposition today than just a year ago. while buying is still 38% cheaper than renting, according to a new report from trulia, that is down from 44% cheaper a year ago. >> it's still very cheap to buy compared to rent. mostly because mortgage rates are still very low by historical standards. they're up over the last year,

but mortgage rates the 4.5 would be the envy of anyone coming to us today from the 2000s or 90s or 80s. >> reporter: mortgage applications to buy a home fell last week. but zelman is not concerned. she said credit loosening and spring will be stronger. >> i think we're going to see things rip when we see the weather thaw and the consumers are coming out and there's not enough supply. >> reporter: that supply was eaten up by investors in 2013. investors may now be turning their sites on new construction. zelman says it's still a small slice of the market but she doesn't dismiss the potential. some large-scale investors are already buying new homes, able to rent them for far higher returns. that new cash could change the landscape for the nation's still beleaguered builders. for "nightly business report," i'm diana olick. carl rigadona joins us to discuss his outlook for the housing market, senior economist

at deutsche bank. what do you make of the conflicting data on housing? are we in recovery or not? >> i think we are definitely in recovery. but we have to be very disciplined at this time of year. because this is the low season for the housing market. activity's typically about 40% higher during those peak selling months of march, april, may, june and july. so what we're looking at now is really just a trickle of data, trickle of transactions. and it can really be distorted by things like the inclement weather that's been impacting much of the eastern half of the country from december into january and again into february. so i'm trying to stand back and not really cast judgment until we get a better look at things in a few months's time? that makes a lot of sense, carl. but when you look at the information we have now, as diana was just reporting, there's not much supply of homes on the market. and then on top of that we see mortgage rates are noctching up 4% for a 30-year.

not bad but they anotching up. does this keep home buyers away? >> i don't think so. we said 2013 was the nirvana year for the housing market, 2014 might be nirvana squared. i think the rate of construction in the gdp accounts will double this year compared to what we saw last year. i think home price appreciation is going to continue. affordability while down a bit from where we were in the last couple of years which is no surprise given that mortgage rates are higher and housing a bit more expensive, affordability is still at record high levels going from 1971 when the data began all the way up to 2007, we are still higher now relative to that period. and even if we have a further back up in interest rates, let's say a 1% increase in mortgage rates this year, affordability will still be higher than at any point during that period. >> you anticipated my question. i know it's a mug's game to forecast interest rates. but with the fed tapering, presumably eventually long interest rates which dictate

mortgage rates will be rising. how much higher do you think we could see a mortgage rate be by the end of this year, and why doesn't that mean less affordability? >> well, it's all in relative terms. so absolutely i think mortgage rates will back up. let's look at the ten-year treasury note, phones, which a lot of mortgages are based off of. our view is that the ten treasury yield could increase by one percentage point or more by year end. a 4% ten treasury compared to now maybe 2.75 or so. so significant room for backup. the same thing will happen to mortgage rates. on the margin, yes, that makes housing less affordabililafford. but it matters where home prices are, where mortgage rates are and also where household income growth is. if we have a creyear where the market finally turns over, that's going to provide a solid support to household income

decree as a creation and enable the average household to be active in the real estate market. >> there's always this debate about buy versus rent. a lot of people got turned away from the whole concept, the american dream of owning your own home because of the latest financial crisis. what about now? where do you see the trend and what does that mean for the economy if more people rent rather than buy? >> i don't think it's a case or once bitten twice shy with respect to the housing market. just as people didn't pull away from stocks after the double in the late 90 and early 2000s, i think people will be very active in re-entering the real estate market. what's interesting, though, there's a shortage on both fronts. so there's a shortage of rental units, there's also a shortage of homes for sale, either newly built ones or resales. so we have an inventory shortage on both fronts. that meanings that we'll see more rental inflation as the rental vacancy rate is back at 2001-2002 levels. it also means we'll see price

appreciation in the housing sector for both newly built homes and resales. we were up about 12% in home prices last year. given the lean inventory and on going increase in sales, i'm hinting of an inventory-sales ratio, that tells us that home price appreciation should be up probably 8 to 10% in 2014. >> all right. a bullish housing forecast from carl ricadona, senior economist at deutsche bank. thanks. on wall street today, investors were encouraged by the strong numbers on new home sales. stocks rose early in the trading session with the s & p 500 hitting a fresh record high. and the nasdaq reaching a 14-year high. and although those mile stones didn't last, the russell 2000 small cap index did close at a new all-time high. at the end of an up and down day, the dow rose 18 points, the nasdaq added 4.5 points and the s & p edged up a fraction. and while a major u.s. stock average inched higher today, russia's rts index fell another

1.5% overnight. that's after president putin ordered combat readiness drills for 150,000 russian troops near ukraine. even without this latest sabre rattling from the kremlin, the rts index is down nearly 11% so far this year. and to update you with more about the ukraine where protest leaders named the former economy minister to head the new government following the overthrow of the president. and as michelle caruso-cabrera explains from kiev, formation of a new government is a key to stabilizing the country's finances. >> reporter: thousands of ukrainance have returned to the square tonight called here by the acting leadership of the country so they can be consulted by a list of names for proposed new government. forming a new government is the next crucial step for the country because it needs to begin negotiating a massive financial bailout as much as $35 billion.

the multinational lenders say they need someone to negotiate with. this all occurs as the country's currency continues to weaken due to fears about the economy and also amid rising tensions with russia. today, a massive protest in crimea in the southern part of ukraine raising concerns about whether or not the country is drifting toward a civil war, and also as russian leader vladimir putin ordered his troops from the western part of russia near the border of ukraine to begin combat preparedness exercises. we wait to see tomorrow whether or not ukraine has a new government. for "nightly business report," michelle caruso-cabrera in kiev. >> late today, u.s. secretary of state john kerry said the u.s. is considering a $1 billion in loan guarantees to ukraine, but no decision has been made yet. still ahead, j.c. penney says it expects sales and gross profits to improve this year. but is it enough to turn investor sentiment?

some positive news from j.c. penney after the market closed today and investors seemed to be encouraged enough to buy the stock at least for now. after the the bell, the struggling retailer reported a loss of 68 cents a share, but that was a lot less than analysts estimates. sales rose 2% to $3.8 billion, but that was below wall street forecasts. j.c. penney says it expects sales and gross margins to improve in 2014. and that's one reason shares initially jumped as much as 10% in after-hours trading. but j.c. penney isn't in the clear. courtney reagan has more on the challenges ahead and what some analysts are advising investors to do with the stock. >> reporter: j.c. penney seems

to garner an outsize amount of attention every earnings season for the past few years. and with good reason. the 112-year-old department store is now just a shadow of its former self. j.c. penney has shed more than $16 billion in market cap since its 2007 peak, signature under 2 billion today. it was struggling before it brought in new ceo ron johnson though his turn around cost j.c. penney a 15% stock decline in his 17 months at the helm. former ceo returned to stem the bleeding in april of last year, but the stock has fallen a further 65% in just ten months. cash is another concern. j.c. penney closed 2013 with $2 billion in liquidity, but some think the department store won't register enough in sales to offset the cash burn and might need to raise capital at the end

of this year or the beginning of 2015. investors are losing faith in a j.c. penney turn around. and analysts growing more pessimistic about j.c. penney's fup. while the same store sales were positive in the fourth quarter for the first time in four quarters, wall street expected more. >> i don't think this is necessarily an imminent bankruptcy as i think a lot of people out there believe. but i think you have to come to grips with what is going to be the timeline and what's going to be the magnitude of recovery here. >> reporter: boss doesn't think j.c. penney is a lost cause, but also doesn't think it's likely it will ever be a $17 billion retailer again. jpmorgan isn't recommending j.c. penney to its clients, echoing the advice of majority of analysts covering the retailer on wall street. for "nightly business report," i'm courtney reagan. and out earlier today, earnings from target showing that the discounter is paying a hefty price for last year's massive credit card data breach. fourth quarter net profit was

cut in half with sales down by 5%. but the chain was still able to pull in 81 cents a share excluding certain items and it beat estimates by 2 cents. it even topped forecasts on revenue. that sent shares soaring by 7% in today's session. but target's troubles are not over yet. the chain's ceo said that the data breach will continue to be a drag on future profits. well, avatar get's hack attack, cyber security is becoming a top priority for executives of some big and small companies. eamon javers is in san francisco at the meeting of the top minds tasked with keeping our data safe from hackers. >> reporter: in the wake of the target security breach, the top mind in cyber security are gathered in san francisco this week for the annual rsa security conference. this is a place where companies hire ethical hackers to figure out weaknesses on their own networking devices and fix them before the bad guys find the flaws. neil himdocha of trust wave is one such ethical hacker.

>> if you view this screen over here, when i enter my pin code in here, you can see that it is giving me information about the events occurring on the mobile device. >> so what this is is what the hacker's actually going to see once he's cracked into your android phone? >> what you can see here is my pin code entering into the device. >> reporter: what's been bad for consumers and retailers has been really good for cyber security companies. analysts predict a wave of mergers and acquisitions in this industry as companies consolidate and the big firms buy up innovative contenders. >> it's almost like a plum for these companies where on one side you have the natural buyers and the larger vendors, and on the other side you have the smaller advanced security technology. i think you're going see a lot of companies kicking the tires here. >> reporter: daniel ives says potential buyers include emc,

microsoft, symantec and oracle. fortu net, imperva. the other topic that people can't stop talking about is politics. there's been enormous controversy here over the degree to which each of these companies has koocht has cooperated with the nsa and whether they should be doing that or not. eamon javers in san francisco. we begin tonight's market focus on the home improvement retailer, lowe's, which continues to benefit from a recovering housing market also issued a $5 billion stock buy back program. the chain's earnings outlook for the year came in just shy of estimates, though, still shares rose by more than 5% closing at $50.72. abercrombie and fitch's product plunged by 58% but the struggling retailer relieved

investors with eastean earnings. cost cuts helped. the board approved a $150 million share buy back program. that stock surged by 11% closing at $40.04. home goods and marshall's parent tjx reported an earnings miss, blamed it on the cold weather. the retailer's profit outlook fell sort of analyst estimates. tjx did announce a new $2 billion buy back program and said it plans to increase its quarterly dividend. but shares were off by 1% closing at $60.29. also from the retail sector, barnes & noble reported a profit for the holiday quarter. that's despite a decline in revenue. but losses in its digital book business continue to weigh down the book seller. barnes & noble also dismissed the offer it received last week from an investment firm for 51% stake. shares rose 4% to $18.47. noodles and company reporting earnings after the closing bell today. and the results were weaker than

expected. both profits and revenue missed expectations, and that sent shares initially lower after the report, ending the regular session at $39.55. and carl icahn and e-bay took their battle to a whole new level today. the activist investor who owns more than 2% stake in the company is calling for e-bay to sell off its fast-growing pay pal business. in a letter to shareholders, icahn also called corporate governance at e-bay quote dysfunctional. well e-bay's reaction?" icahn's claims are dead wrong. the scuffle boosted shares by 2% to $57.34. we have an update now on a story we told you about yesterday that "wall street journal" report detailing the hostile relationship between pimco co-chief executives bill gross and mohamed el-erian which culminated in el-erian's resz egg nation. now the "new york times" are reporting pimco's parent company are concerned and they are

urging the firm to act on personnel issues at pimco to make sure that there are no more executive defections. delta airlines making some big changes to its frequent flyer program. beginning next january, members of delta sky miles will rack up free miles and other rewards based on how much they pay for tickets, not how many miles are traveled. this could be good news for big-spending, first-class flyers and business travelers who often book flights just days ahead of a trip when tickets are the most expensive. well, we know flying's expensive. so is buying a new car. but there's a growing trend in the automotive industry with people buying their cars through third parties at a preset, for haggle price. and it's the reason that auto sales are climbing at costco. yes, costco. phil lebeau explains why the warehouse retailer is where more shoppers are picking up a new car. >> reporter: from 1200 sheets of toilet paper to 50-pound bags of

rice, costco has long before the place to buy in bulk at low prices. but these days, costco members are checking out something else, new cars. >> on average you're probably saving 1,000 or more dollars off of what you might spend hours haggling trying to get to. >> reporter: mona bought her volkswagen passat through costco. >> oh, i love it. i feel great. >> reporter: she did what 340,000 other costco members have done in the last year. she wanted a passat, so she went through costco's auto web site, which sent her to a local vw deal who are had the passat at a preset price. within 48 hours, she had her car. >> i saved so much time. in the past i would hop from deal dealership to dealership taking several weekends, combing the lots trying to get a deal. trying to bargain. but this was so much easier. >> reporter: auto dealers around the country pay costco for referrals. even though they wind up selling below invoice.

why do they do it? because the dealers will make money in years to come servicing those vehicles. and they know direct, prearranged sales is the new way consumers are buying cars and trucks. >> those days of going going to six or seven dealerships to shop for a car are over. >> reporter: for costco selling cars and trucks is not a huge moneymaker but a way to offer members like mona what she was looking for, a quick, haggle-free way to buy a new car. phil lebeau, "nightly business report," carlsbad, california. and coming up on the program, federal insurance co-ops. they were born out of the new health care law. but could taxpayers be left holding the bag if things don't work out as planned? the time part of our health care series is next.

the poor condition of some nation's railway is one of the reasons why a massive new white house spending initiative that president obama was in st. paul, minnesota announcing a four-year, $300 billion plan to create jobs by fixing the nation's roads, bridges and rails. >> what companies are saying they intend to hire more people this year, we need to make that decision easier for them. and we can create jobs at the same time. rebuilding our transportation systems, our power grids, our communications networks, all the things that commerce relies on. >> but about half that money relies on ending some federal corporate tax breaks. finally tonight, in an effort to spur competition, the affordable care act provided government loans to launch non-profit ensures known as co-ops that were designed to compete against established commercial insurance plans. in the final part of our series, insurance upstarts bertha coombs

tha takes a look at the co-ops and whether they could end up leaving taxpayers on the hook if they falter. >> created to give us control of our own health care. >> reporter: health republic or new jersey uses its nonprofit status as a selling point. >> we're proud of that. we found that message resonates with people. the whole idea of being a cooperate i've, consumer operated and oriented plan not for profit committed to innovating in health care. >> reporter: it launched with help from the nonprofit freelancers union, using federal loans under the affordable care act. >> we've been granted a considerable amount of sovereignty dollars to make sure we're able to cover any of the issues and concerns around you tillization so none of our members would have to be concerned would we be able to cover their hospital bill. >> reporter: under the aca the obama administration provided $2 billion in guaranteed loans to 24 new co-ops. one in vermont failed to win approval from regulators,

prompting comparisons from critics to the administration's 2010 energy loan program which saw the high profile default or solar panel maker solyndra. >> this is what happens when the government takes winners and losers with taxpayer money. >> reporter: at a house oversight committee hearing this month, democrats cried foul. >> as much as the majority would like to manufacture a scandal there simply isn't one. there is no smoking gun. this is no solyndra. >> reporter: then they walked out in protest, while republicans grilled the freelancers unions executive director about her group's dealings with the obama administration and about $340 million in loans used to launch health republic co-ops in oregon, new york and new jersey. >> we did everything we said we would do to help those co-ops launch successfully and to move them quickly to self-sufficiency. and it worked. the co-ops were sponsored -- i'm

sorry. the co-ops we sponsored launched on time as independent entities. >> reporter: james martin chalks it up to politics. >> i know the number of attempts to derail the affordable care act. >> reporter: he's confident health republic will be financially sustainable. though near-term the botched health care.gov rollout has meant a slow start to enrollment. >> we are not seeing the first-time enrollees that was part of the target audience and the target segment for the affordable care act. whether they're the group that's waiting until the end of march i'm not sure. >> reporter: early enrollment has been mixed for the co-ops. health republic of new york has garnered 16% market share, making it competitive with commercial carriers. while minutemen health in massachusetts has struggled. but aca gives them time to get it right. up to 15 years to repay the bulk of their loans. bertha coombs, "nightly business report," new jersey. >> that is "nightly business report" for tonight. i'm susie gharib. thanks for joining us.

>> i'm bill aggressigriffeth. have a good night. "nightly business report" has been brought to youin part by -- >> the street.com. founded by jim cramer, the street.com is an independent source for stock market analysis. cramer's action alerts plus service is home to his multimillion dollar portfolio. you can learn more at the street.com/nbr.

tonight on quest -- for nearly 80 years, the hetch hetchy aqueduct has been supplying drinking water to millions of bay area residents. but that pipeline is long overdue for a seismic upgrade. >> we've done a lot of things to improve building codes, to make sure buildings don't fall down. but all of that falls apart if there's no water. >> quest looks at the multi-billion dollar project designed to earthquake-proof this critical water supply. and since the dawn of photography, scientists have been capturing images of celestial objects in the night sky. now, astronomers in north carolina are attempting to save those historical records before they vanish. >> if we throw this stuff away, the opportunities of exploring this world around us go with them.