Warren Buffett’s Housing Hopes

By on August 4, 2012

Hopes are high for a recovery in the housing market. Joe Light, reporter for the Wall Street Journal, surmises that Warren Buffett is betting on a resurgence in housing. Buffett recently made a bid on Residential Capital’s loan portfolio in a bankruptcy court auction.

The things working in housing’s favor, according to Light, include new home inventories which, in terms of raw numbers, are at their lowest level in five decades. The months of supply has just crossed below six months. Along with this, prices have just started to inch up, according to Light. The latest Case-Shiller measurement shows price increasing 0.9% on a seasonally adjusted basis. Light added that momentum in home prices is making the market look more positive.

Light admitted that home prices looked like they were stabilizing about 1 1/2 years ago before falling again. Another factor he sees working in housing’s favor is price/rent ratios. This ratio is back to the same level as 1998, or 2001, depending on the index you look at, according to Light.

Light suggested there were two ways for retail investors to play a real estate rebound. Homebuilder stocks like KB Home and Lennar are one way. Light mentioned Frank Haggerty, portfolio manager with Duff & Phelps Investment management, who is investing in commercial real estate, or REITS, with shorter leasing times such as apartment buildings or self storage units. As the economy gets better they can raise their rents more quickly.

A few weeks ago Buffett said he was seeing a pick-up in residential housing, but it wasn’t enough to boost the overall economy (link).

One Comment

  1. Elderly Curmudgeon

    August 5, 2012 at 3:28 pm

    There is a huge shadow inventory which is convenient to overlook, Joe. There is also massive pent-up homeowners waiting to sell on any minor uptick in prices – as it is at the end of the piercing of any bubble. Buffett will rue the day he bought into the idea of a housing recovery. Well maybe not too much since he can afford to lose a few billion here and there.

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