Warren Buffet adds to his bet on US housing

Warren Buffet seems to have no doubt the direction of US housing, and for him that is up. His Berkshire Hathaway vehicle is extending its bet on the US housing market through the formation of a venture with Brookfield Asset Management as many of the ingredients for a real-estate resurgence gel together.

Berkshire’s HomeServices of America unit will be the majority owner of the venture, which will manage a US residential real-estate affiliate network and offer a new brand called, Berkshire Hathaway Home Services next year employing another 8,000 people or so.

The move is just the latest in a series of investments from Buffet aimed at the sector. His Berkshire Hathaway is the largest shareholder in Wells Fargo bank (held in the Fat Prophets US portfolio), who have stepped into the breach and created one-third of all US mortgage loans in the first quarter. Recent filings indicate he has been increasing his holding in this well run bank.

Speaking on CNBC last week he said that Berkshire’s carpet business, Shaw, will see its profits double this year and their manufactured-housing construction company Clayton Homes is building an additional 15% more units. The Oracle of Omaha also snapped up brick maker Jenkins Brick, to bolster his existing brickmaking operation last year.

Macro data is supportive

Housing starts in September increased 15% last month to a seasonally adjusted annual rate of 872,000 units, which was higher than even the most optimistic forecasters on Wall Street had predicted and the fastest growth since before the GFC in 2008. Housing starts reached a pre-recession peak of 2.1 million in 2005, the most in more than 30 years, before slumping to a low of 554,000 in 2009. The combination of uber-low mortgage rates and rising rents are an incentive for more to buy, particularly with the Fed committed to keeping interest rates dialled down for years yet. Certainly for current generations it has never been more affordable to buy your own place, with the average rate on a 30-year fixed mortgage recently declining another 6 basis points to 3.49 percent. 

Similarly, sales of new US single-family homes soared in September to the highest level in nearly 2 1/2 years, jumping 5.7 percent to a seasonally adjusted annual rate of 389,000, the fastest pace since April 2010. And although the Commerce Department reported that sales in August were revised down to a 368,000-unit rate from the previously reported 373,000 units, the tenor of data was relatively strong, with the median price of a new home rising 11.7 percent from a year ago.