Buffett predicts housing recovery in 2011

The Oracle of Omaha, in his annual letter to shareholders of Berkshire Hathaway Inc., has written, “Within a year or so, residential housing problems should largely be behind us. Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.” The decline in the U.S. housing market has led to record foreclosures and an over-supply of housing. Buffett thinks it will take another year before housing demand catches up with supply. Buffett said reduction in new housing starts is the best way to reduce inventory overhang, and joked that the only other options are to destroy existing homes in a “tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program” or “speed up householder formations by, say, encouraging teenagers to cohabit, a program not likely to suffer from a lack of volunteers.” Berkshire, which owns companies in the real-estate space, has suffered on account of the housing slump. Clayton Homes, the pre-fab housing company owned by Berkshire, saw a drop in profit by about 9% last year, while earnings at Shaw Industries, a carpet manufacturer, dropped 30%. Buffett decried the “punitive differential” in mortgage rates between factory-built homes and site-built homes. While buyers of site-built homes obtain a 30-year loan at a little over 5% on account of guarantees offered by Fannie Mae and Freddie Mac, buyers of homes built by Berkshire companies such as Clayton pay as high as 9% on their mortgage since “very few factory-built homes qualify for agency-insured mortgages.”

NorthWest Real Estate