Buffett Says US Housing Will Recover in 2011

Warren Buffett, the billionaire investor who also owns a home building company predicted that the housing market would recover in 2011. “Within a year or so, residential housing problems should largely be behind us,” Buffett wrote Feb. 27 in his annual letter to shareholders of his Berkshire Hathaway Inc. “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.”

Here's the specific quote:

"People thought it was good news a few years back when housing starts – the supply side of the picture – were running about two million annually. But household formations – the demand side – only amounted to about 1.2 million.

After a few years of such imbalances, the country unsurprisingly ended up with far too many houses. There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce new housing starts to a number far below the rate of household formations.

Our country has wisely selected the third option, which means that within a year or so residential housing problems should largely be behind us, the exceptions being only high-value houses and those in certain localities where overbuilding was particularly egregious. 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. Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means because the bubble burst."

So what does a housing recovery mean is housing prices remain far below their bubble prices? It means that those that bought a house during the top bubble years - 2003-2005 may not see a recovery in their housing prices for a good number of years. It also means that those that waited, or had the good fortune to be coming of house age now, may benefit. As Buffet point out, one person's loss is another person's gain.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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  • Altos

    March 02, 2010

    Buffet is wrong. No housing recovery until 2017 at the earliest. The housing market didn't recover from the 1980s crash until 1998. There's no reason to think this crash won't take longer to recover from the be deeper.

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