Successful Mogul Warren Buffet Extends Real Estate Bet

June 21, 2012 / Russell Legato, Residential Property Analyst

Warren Buffet extends a real-estate bet. He bets on success in the real estate industry. In May, the ResDev business, along with its loan portfolio will be auctioned. Buffet filed a bid of $2.4 billion for the mortgage unit, and $1.45 billion for the portfolio.

Successful Mogul Warren Buffet Extends Real Estate Bet

When Buffet, the Berkshire Hathaway CEO puts his money where his mouth is, it is an endorsement on the future of the entire real estate industry. He has expressed his belief in a successful future numerous times. This seems a stamp of approval that the housing market is back.

Figures reported on the auction bids came from Bloomberg. Buffet notified Berkshire shareholders of his opinions in a seemingly conflicting statement. First, he said he had been wrong when he said there would be a housing recovery this year. Later in the letter he sent out, he gave a list of why the recovery was a sure thing.

The recession has facilitated many young college graduates return to living with parents. It has caused some to delay marriage or moving in together. On a favorable note, the job market is definitely on the upswing and that could soon change the overall picture.

Couples in their twenties and thirties, who have been living with parents, will soon grow tired of it and want to purchase a home of their own. Buying is now a more attractive option than renting. That may change in the near future. Builders and developers cannot find enough attractive lots in desirable locations. Interest rates remain bargain-basement. Put the two together and now if not yesterday is when they will buy.

As banks loosen up their grip on mortgage money, more applicants will be approved in spite of a few small credit glitches. As soon as mortgage rates go up, potential homeowners will make a move. The 20 percent down payment now needed may be lowered. Government programs are already having some effect.

Conversely, over 11 million of those who own homes are either foreclosed on or facing the possibility. Credit approval on mortgages is limited to those with near spotless ratings. These two factors could mean recovery will progress at a slower pace.

This seems to be evidence that, as Buffet’s optimism indicate, the near future recovery is imminent.

But, to paraphrase a statement made to his shareholders, more households are being made than there are available units for them to live in. As demand exceeds supply, in our capitalistic society the basics of supply and demand will affect the situation. Prices may be higher by then, but the fact is, home ownership is a part of the American dream.

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