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Posts Tagged ‘Warren Buffett’
What if Mr. Buffett´s prediction is right?
Let´s assume for a moment that his prediction of a US housing recovery sometime in 2011 is correct and let´s also bear in mind that people who have betted against him in the past haven´t done so well.
Is it better to wait until 2011 and start investing in property once prices start recovering? Or might it be worth using some money sitting in a (very) low interest savings account to purchase well priced high quality properties while they are still available?
It´s been a crazy 18 months in the real estate business, but as the Sage of Omaha himself said “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it”.
Translation: These fluctuations caused a flood of motivated sellers to appear. They won´t stay so motivated indefinately.
Kind Regards
Colin Murphy
Investors and property agents were jumping for joy last week when billionaire Warren Buffett said the U.S. residential real estate slump will end by about 2011.
According to Buffet’s latest annual shareholder Letter, “the industry is in shambles for two reasons, the first of which must be lived with if the U.S. economy is to recover. This reason concerns U.S. housing starts (including apartment units). In 2009, starts were 554,000, by far the lowest number in the 50 years for which we have data.
Paradoxically, this is good news. 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.”
Jokingly, Buffet offered three ways to adjust the imbalance:
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.
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,” he said. “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.”
Kind Regards
David Shaw
Sales & US Sourcing Manager
