Warren Buffet, the billionaire entrepreneur become very famous for his foresight, recently sent his annual letter to his shareholders. This year he has a special section dedicated to real estate where is is directly involved because Berkshire Hataway Inc, his company, owns the house manufacturing company Clayton Homes.
According do Buffet’s analysis, the manufactured homes market is in very serious trouble because the economy is still slow and because of the number of new houses that started production in 2009 (housing starts) is the lowest in 50 years in the US. The overall figure being: 554,000 compared to the 2 million annual production that was going on a few years ago.
New house starts (new construction beginning) is at the lowest in 50 years.
It is a dramatically strong reduction that has serious impact on employment (it is actually pretty easy to find tradesman and construction people available for work today) but that is helping the recovery of the general real estate market.
Indeed, with so little new homes being constructed or manufactured, the inventory on the market has a chance of being unloaded faster. Actually January has been a very slow month after the rush of the buyers who wanted to take advantage of the tax credit that was supposed to end in December 2009, but Buffet sees the dramatic drop in new houses as a very good indicator for the overall real estate market and he estimates that within a year “the residential housing problem” should largely be behind us.
Looking at the figures, 650 thousand net housing units were added during 2009 and during there were not as many new households: about 650 thousand, therefore just enough to balance the houses that had been added but not enough to seriously reduce the inventory, which should instead start reducing for real in 2010. How fast? It depends on what the banks do with their foreclosure backlog and how people will take advantage of the tax credit and of the government support to new first time home buyers.
Roberto Mazzoni
Tags: "house starts", "real estate investment", "real estate", "Roberto Mazzoni", "Warren Buffet"
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Hi Robert,
I recently caught a brief interview with Warren Buffet on CNBC.
Something that struck me was his admitting to missing some huge investment opportunities due to not being able to understand them.
He even named names, Ebay, being first on the list.
With that in mind, I find his confidence in a firming real estate market suspect. In fact a brief conversation with Harry Dent the only Economist who seems to “Get it” and he would quickly see that the US demographics don’t bear out and increasing demand for housing.
Maybe Mr Buffett would consider entering the field of lending in an effort to prop up his own company profits while assisting in getting things back on track is the housing market.
Right now the banks are being propped up by the government,(at the taxpayers expense), instead of being allowed to fail, and they’re ignoring the primary reasoning for the “Big Brother” helping hand, which was reducing foreclosures, and increasing lending where it was needed.
Neither of these have happened, and many of the banks have made the modification process more difficult to qualify for, than it is to get a new home loan in a very difficult lending environment.
I wonder of their shareholders realize that?
Maybe Mr. Buffett could sway his new friend (our current President) to consider shifting reserve requirements lower, in order to allow banks to actual lend (not hoard) some money. This alone would aid small businesses (the true economic saviors) and increase consumer spending dramatically.
Tampering with free markets has historically been a disaster, and we’re seeing history repeat itself first hand, without grasping any lessons from that firmly proven historical fact.
Sorry about the rant, I’m a big fan of FREE markets.
I am also a raging optimist, with a bit of realist thrown in.
Take care, Robert
Hi Rick,
your comment is an article in itself and a very well considered evaluation of the current situation and its potential outcome. I thank you very much for taking the time of sharing it with us.
Take care
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