Wikinvest Wire

What does Buffett see in the housing market?

Monday, May 04, 2009

At first glance, you'd think that these stories about comments made by Warren Buffett at last weekend's annual shareholder meeting were at odds, but they're really not.

More than anything else, how you react to the first headline above has to do with your own expectation of what might lie ahead.

For example, conditioned as most people have become over the last 20 years to expect rising asset prices, it is reasonable to think that, after stabilization, there is only one direction - UP.

Very few, presumably only the die-hard, perma-bears, would look at that first headline and think of it as being negative. Then again, are there really any developments that would be considered "positive" by die-hard, perma-bears?

The second headline splashes a bit of cold water on those who might interpret that first one as being an "all-clear" signal, though, after what the world has been through over the last nine months, "some stabilization" with "no signs of recovery" is quite good, relatively speaking.

From the first story at MarketWatch:
Berkshire Hathaway Chairman Warren Buffett said Saturday that he sees some signs of stabilization in housing markets.
...
"We see something close to stability at these much-reduced prices in the medium to lower part of the market," Buffett said.

Roughly 1.3 million households are created each year in the U.S., while about two million homes were being built a year during the recent boom, Buffett added.
At that rate, "you will run into trouble," he said.

Now housing starts are running at roughly 500,000 units a year, which means the excess inventory is being absorbed at a rate of about 700,000 to 800,000 units a year, Buffett said.

"We're going to eat up inventory. That may take a couple of years. When it gets done you will have stabilization in housing prices," Buffett predicted. "Then you will have demand for more housing starts."
You have to get pretty far down in this story to get the time horizon for this "stabilization" which, unfortunately, is measured in years, not months.

The Bloomberg report, on the other hand, provides a much more accurate assessment of how the Oracle of Omaha currently sees the world:
Billionaire investor Warren Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., said he’s seen no indication of recovery from the real estate slump that helped cause the U.S. recession.

“There’s no signs of any real bounce at all in anything to do with housing, retailing, all that sort of thing,” said Buffett, 78, in a Bloomberg Television interview before the Omaha, Nebraska-based company’s annual shareholder meeting today. “You never know for sure, even if there’s a leveling off, which way the next move will be.”
Geez! He somehow felt the need to remind people that things don't necessarily go back up after they stabilize, if and when they do stabilize.

That's quite a turnaround from the promise of that very first headline above, a fresh reminder about how the financial media can shape public opinion.

3 comments:

Anonymous said...

My favorite Buffett headline was, "Buffett dispenses gloom at somber Berkshire fest"

resident said...

1. It seems Buffet based his assumption on "using up 700-800,000 of housing inventory" a year. BUT, that is assuming the inventory in all the locations will be used up at the same rate! (Alas, nobody wants to move to Las Vegas or Phoenix, no matter how cheap the houses!) So I think we will probably see the excess inventory absorbed in the most desireable areas first. (This is assuming the crazy builders don't start trying to build too early.)
2. Everything, and I mean everything about a recovery depends on jobs. If there are jobs people will buy, if jobs are not available, people won't buy...anything.

resident said...

Remember, real estate is LOCAL.

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