Sunday, February 26, 2012

Warren Buffett's thoughts on USA housing

An exerpt from their annual reporting, Berkshire Hathaway remains optimistic on USA housing, although the recovery is slower than he imagined.  The interesting thing, is in December and January we are starting to see real signs of recovery.  I still think 2013 will be the year when the turn is in full swing as the bad financing policy (subprime lending policy) will be washed through the system.

Billionaire investor Warren Buffett said Saturday that he was “dead wrong” with a prediction that the U.S. housing market would begin to recover by now, but he remains optimistic about the nation’s economy.

In his annual letter to Berkshire Hathaway shareholders, Mr. Buffett said he is sure housing will recover eventually and help bring down the nation’s unemployment rate. But he did not predict when that will happen.

Mr. Buffett said housing “remains in a depression of its own,” but he predicted, in typical plain-spoken style, that the housing market will come back because some human factors can’t be denied forever.

“People may postpone hitching up during uncertain times, but eventually hormones take over,” he wrote. “And while ‘doubling-up’ may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.”

Full article available here



    United States
    • U.S. stock markets have been on a tear over the past several weeks reflecting newfound optimism in the economic outlook.
    • The housing market is leading the improvement in economic indicators and showed continued momentum this week. Existing home sales rose to levels last seen during the homebuyer tax credit of early 2010. Supported by continued job gains, the housing market looks to be turning a corner.
    • The one caveat to rising optimism is rising gas prices. As tensions with Iran push up crude oil prices, consumers are feeling it at the pumps. A sustained gain in oil prices presents a key downside risk to recent economic momentum.

    • Canada’s S&P TSX, which is up a solid 3% over the past two weeks, is ending February like a lion.
    • The Canadian dollar is also benefitting from an improving global risk appetite, hovering at or above parity for its longest stretch since the autumn.
    • Partly reflecting geopolitical concerns, upward pressure on crude oil prices has not hurt demand for Canadian-denominated assets.
    • This coming week’s release of Canadian GDP for the fourth quarter will likely continue to point to respectable growth.

  2. In regards to the US outlook.

    Upon the sub-prime crash, I think the housing industry will see the bottom in late 2013/ early 2014. We'll see majority of US citizens re-qualifying for mortgages upon the conclusion of their bankruptcy terms. The ramp up of new developments will not start until this same time frame. At current state, there's no money to be made in building with such cheap prices. The market as a whole will take 15 to 20 years to bounce back to the same pre-2008 levels. I would caution that this is a very optimistic outlook.

    For stability, I would look to invest in local counties with conservative banks. These counties are identifiable where prices remained volatile to within 5-10% range during the 2008 sub-prime crash.

    I feel the stock market is completely detached from housing and doesn't perform in the same manner as housing. Is TD looking at the market as a whole or housing related stocks? If so, which ones?


  3. I am a little more optimistic. I think we have hit the bottom and are on the slow upswing. I think 2013 is the end of the sub-prime mortgage debauckle (trace back 5 years to 2008).

    I agree building is not great right now. Houses are selling at less than $100 a square foot and construction costs are around $125 per square foot. Certain cities are starting to enter a period of housing shortage, so building will start there out of necessity. Check out Metrostudy out of Texas, interesting research.

    I think it will be a while until we see 2006/2007 levels. I think values will settle somewhere between now values and 2006 levels because today's values are too low and the previous were to highly inflated.