Warren Buffet Bets On Housing


(Image by Jamais Cascio, via Flickr.com)

It’s not an objective measure by any means but some might find comfort in the “Oracle of Omaha.” Warren Buffet is predicting that 2012 will be the year that the U.S. housing market rebounds. The catch? He said the same thing last year. In fairness, Buffet was the first person to admit that this prediction proved to be, in his words, “dead wrong.”

Here’s Buffet’s thinking: As everyone under 30 knows, people are living at home later in life. A deadly cocktail of high unemployment for new grads, low wages and student loan debt have conspired to return an entire generation to the nest. Buffet also points out that, due to sharply lowered demand, there has been little in the way of new housing sales. Buffet believes this means that when the boomerang generation begins leaving the sandwich generation’s homes, there will be a boom in housing prices. One of America’s richest men, Buffet told CNBC that if it were possible, he would invest in real estate by buying millions of American houses.

His optimism has some basis in reality. The National Association of Realtors released a report showing pending home sales at their highest levels since April of 2010.  The pending home sales metric provides some insight into the future trend of the market, though it does reference contracts rather than closings. The Pending Homes Sales Index increased by two percent in January and is up eight percent from January 2011. Pending home sales saw their biggest increase in the northeast and the south.

In an article on the National Association of Realtors website, NAR chief economist Lawrence Yun displayed cautious optimism. He believes that the housing market is rebounding. Yun further stated that a significant bump in housing sales — to the tune of 15 percent — when credit becomes more widely available again. Still, he couched this in caution language, referring to “if and when” credit was available again.

For those concerned about their own personal finances, the question quickly becomes whether or not this is the time buy a house or invest in real estate. Whether as a place to live with your family or an investment in the future, there seem to be signs that real estate is heating up again. While one should never totally disregard the advice of Buffet (he’s called “The Oracle of Omaha” for a reason, after all), his past track record of producing a housing rebound gives little reason for excitement. Still, Buffet’s language was stronger this year. In 2011, he merely said he believed there would be a housing market rebound. In 2012, he’s saying he would actually invest his own money.

But the real sign that it might be time to buy are the figures from the National Association of Realtors. Real estate and housing is showing the first stirrings of recovery. This could, in turn spur a construction recovery, greatly strengthening the job market. Further, “if and when” the credit market loosens up, Lawrence Yun further predicted that home prices would rise and fewer homeowners would be underwater. None of these are insignificant changes to the overall American economy and could legitimately break the back of the recession.

Still, some dangers loom ahead. Even good signs domestically don’t decouple the United States economy from the rest of the world. Christine Lagarde, head of the International Monetary Fund (IMF) expressed concern that the world economy was in “the danger zone.” Lagarde cited sluggish growth in developed economies, slowing growth in developing economies and uncomfortably high unemployment, particularly in developed nations. Fed Chief Ben Bernanke pointed out that rising gas prices are likely to affect the recovery in the short term. He stressed, however, that this would be a temporary setback.

The good news about the housing market is welcome. However, one thing is clear: We’re not out of the woods yet.

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Published March 12, 2012 Updated: February 18, 2014
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