Investment magnate Warren Buffett admitted a mistake and made predictions for the housing market in his annual shareholder letter. In the letter, Buffett announced he was wrong in his predictions that home prices would rebound last year. While he was premature in his hopes for the housing market, he maintains his stance that home prices will recover this year.
Who is Warren Buffett?
After graduating from Columbia University with a business degree, Buffett moved back to his hometown Omaha, Nebraska, and founded the partnership Berkshire Hathaway, when he was just 25. With his intuitive grasp on investing, his friends and family members had no qualms about giving him their money to manage. In less than ten years after founding the initial partnership, Buffett was a millionaire. By the late 1970s, Buffett was on the Forbes 400 list of richest Americans. As of today, Buffett is worth over $40 billion.
Now famous for philanthropy, frugality, and annual letters, Buffett has become a market wise man, or the “Oracle of Omaha.” Though he was disappointed that the housing market did not improve according to his prediction, his hopes remain high for 2012. Buffett gives the following reasons for why he’s betting the housing market will improve.
Reason 1: Market Uncertainty
Buffet explains that the housing market’s current depression is a result of too many young people living with their parents. Many boomerang kids leave for college only to return to their parent’s house after their four-year degree is completed. Wary of the uncertain economic times, more young people would rather live with their parents than purchase their first home. For that very reason, Buffett believes those young people will become agitated living with relatives. According to Buffett, “people postpone hitching up during uncertain times, but eventually, hormones take over.” What Buffett calls “hormones” is really an urge for independence that may impel young adults to venture out on their own for the first time.
Reason 2: Decline in Supply
According to Buffett, homebuilders, contractors, and construction workers are not creating enough new homes to support the rising demand. As excess inventory leftover from the financial crisis disappears, renters, young Americans, and first-time home buyers will be looking for homes. Indeed, data released by the National Realtor Association suggests that Buffett may be right on target, as pending home sales are the highest they’ve been since April 2010.
In an appearance on CNBC, Buffett added that if it were possible, he’d buy up thousands of single-family homes. With low prices and rising demand, houses make for an attractive investment. When homes are held at low rates for a long period of time, they make for an even more attractive investment than stocks, Buffett says. Buffett advises those purchasing homes to take out 30-year mortgages and refinance if rates drop.
Warren Buffet say's "If it were possible he'd buy up thousands of single-family homes.
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