Although he admitted that Berkshire Hathaway’s home construction businesses struggled in 2010, Warren Buffet, chairman of the company, predicted that a housing recovery could begin within a year or, at least, “it is certain to occur at some point”[1]. Buffet pointed out that the company’s home construction businesses were still in their same competitive positions in the industry, but allowed that “their profits are far below the levels of a year ago.” While the country waits on the housing recovery – which Buffet clearly anticipates, though not with much specificity – the chairman is preparing Berkshire Hathaway “with capital investment,” including spending $200 million on plants and equipment for Shaw Industries (carpet), “all of it situated in America.”
Lately, Buffet has been making waves as he “bets” on a housing market recovery by putting his money, literally, where his mouth is. He recently acquired an Alabama brick manufacturer and began construction on a roofing plant in Ohio that will run him about $55 million[2]. In his letter, he emphasized common sense in future housing market regulation, saying “Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.” Buffet accuses “government guarantees” of facilitating this “nightmare…fantasy” in the past and recommends against a future home ownership process that relies on the government for support.
What, if anything, do you think that Warren Buffet’s letter and predictions should mean to the housing market and to real estate investors?
Thank you for reading the Bryan Ellis Real Estate Letter.
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[1] http://www.furnituretoday.com/article/536301-Buffett_Housing_recovery_could_begin_within_year.php
[2] http://www.consumeraffairs.com/news04/2011/02/warren-buffett-is-bullish-on-america.html
While it is interesting that Mr Buffet is preparing for (gambling on) a new housing turnaround, the economy must turn around first. He must be getting these supply companies on the incredible cheap, just in case there isn’t a turnaround. For those of us who are underemployed and being put out to pasture by these hard times, it’s really a hollow news event. It will be too little too late for us.
This man long ago showed his greed when he excused the wall street fraudulent behavior and his investment in the same. He, like so many other very wealthy individuals have “tunnel vision” when it comes to protecting what they already have.
Warren is right. America needs a dose of reality. Couples need to save some money to buy a starter house. The nonsense that young people should go buy a ‘lifetime house’ for more than they can afford w/ an adjusting mortgage is so wrong. I have been an employee & employed over 200 men & women. I know wages have never increased as fast as expenses. This will never change. Worse, the new economy is full of monthly subscriptions for everything. Phones, cable, net, car insurance, on line training, magazines, job related expenses, etc. People must stop burying themselves in indulgences by credit. Fantasy is the word, Warren.
Did anyone notice the ‘government garrantees’ helped the banks more than consumers ? They are not losing anything, the bank system is reimbursing companies for almost all losses.
So far as a recovery, with fuel prices going crazy timelines will be stretched. I have followed the economy for 45 yrs, Americans always pick up the rubble & move ahead.
buffett says gov’t should stay out of housing mkt—-i say gov’t belongs in 1st time home buyers mkt where they can help the families of u.s.afford to buy—i say let govt stay out of supporting wall st fat cats & banks who need to stand on there own & let the money go where it can help start good folks on there way to home ownership
Methinks it will be a loooong time before Buffet sees a return of some of those investments. Fortunately for him he has the capacity to see it through to that point, so yes, in that perspective in makes sense for him…but then again, he may be dead by then…
Common sense is certainly an admirable way to go, but the common sense of what group of people. When Mr. Buffet says we should not put familes in the home of their dreams I have to agree to some extent. That is, the home of ones dreams should not be your first home prebuilt and ready for consumption. This describes the macMansion we’ve heard so much about. Americans for too long have been conveniently buying more than they can practically afford courtesy of common pratices of American banks and Home builders as well as the government. Government regulation is not the main culprit of our housing woes. Profit margins for banks and homebuilders are.
What needs to be built are common sense affordable homes. Everbydody has gotten used to cringing at the term thinking this means their property values will drop and inferior homes will be built in the neighborhood. Instead we’ve opted for the two income earner home. We’ve let the mortgage banks, homebuilders and our local officials talk us out of responsible growth. Where was common sense when this atrocity was being committed. Responsible growth should include smaller homes that we can add to as our families, wealth and credit grows stronger. We should be building our dream homes over time. Thats how our parents did it with even one moderate income. Today, if your single you better have a job that pays you like you were a two income earner. Additionally, the singles market is growing fast and we should allow young homeowners and singles an opportunity to also buy responsibly.
Smaller more efficient homes can be built with high design and future growth in mind while preserving the financial integrity of homebuyers and the market. I hope Mr. Buffets home building arm recognizes this and does not submit to inferior building by supporting the repeal of quality construction for safety, health and environmental quality if life.
From what you say he said in todays newsletter , along with some speculation
on my part,Mr.Buffet may be gearing up to “enable” more affordable and financially sustainable housing to coincide with an anticipated recovery.
While I’m not a “Buffet Groupy”, I’ve not read his books,from what I know about him, I’d be reluctant to disagree with any of his strong predictions.