In economic news, the Commerce Department reported that durable goods orders for April rose 3.3%, beating consensus estimates of 1.6%. The previous month was revised to -5.9% from -6.9%. Durables are orders for long lasting manufactured goods such as aircraft and washing machines. Excluding transportation, orders rose 1.3%, which also beat consensus estimates of 0.5%.
Despite the recent strength in housing and the positive effect it has had on the economy, some are warning that the enthusiasm should be tempered. Robert Shiller, Karl Case and David Blitzer, all leading experts in the housing market, believe several headwinds will keep a lid on housing gains. The hurdles they see are a low level of new home starts, an unexpectedly slow migration of shadow inventory onto the market, and continued difficulty for buyers to secure financing.
Shiller, a Yale University economist, noted that the housing recovery in the short run has been great, but longer term, the recovery isn’t as rosy. According to David Blitzer, he mentioned, people are worried about housing as a risky asset. Karl Case referred to housing starts, which have taken a recent downturn in April, although building permits have surged recently, but Case said housing starts are the more important metric. Building permits are an unreliable gauge as they do not represent actual building. He also said that he is dismayed at the lack of inventory on the market, in part to a slower than expected foreclosure process. The caution they are stating is not immediate, as they believe the momentum in housing should increase in the next six to twelve months, but longer term they are not so optimistic.