Could it be? Are we past the Housing Hangover?
Warren Buffett says so. Thanks to hormones…
“Housing will come back – you can be sure of that. Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while ‘doubling-up’ may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.”
True, he’s said the same before. (Not the hormone bit, mind you, just the part about the upcoming real estate boost.) And he later apologized when it didn’t happen.
However, he’s putting his money behind the inevitable turnaround once again, as Berkshire Hathaway (NYSE: BRK-B) put in a $3.8 billion bid for the loan portfolio and mortgage business of Residential Capital, LLC (ResCap), the bankrupt mortgage arm of Ally Financial.
It’s also worth mentioning that Berkshire already owns 40% of ResCap’s junior secured bonds.
So with so much interest in a bankrupt mortgage division, is there finally light at the end of the tunnel for real estate?
You bet. Other moves by Buffett show that he’s even more behind the turnaround than ever…
According to the San Francisco Chronicle, “Berkshire has prepared for a turnaround by buying a brickmaker, expanding its real estate brokerage and wagering on commercial property through a company jointly owned with Leucadia National Corp” (NYSE: LUK).
And Jeff Matthews, author of Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett, told Bloomberg, the bid on ResCap “certainly indicates that he thinks the worst is behind us.”
Then again, Buffett’s been wrong before. What makes his latest real estate move different?
Simple. This time, every economic indicator agrees that housing is about to rebound…
Recall that Louis Basenese broke down 11 signs that the housing market was on the verge of an upswing. Here are a few indicators he mentioned…
- Housing Starts: The amount of residences breaking ground for 2012 is up 14.7% from last year and up 18.9% from 2010.
- Building Permits: To build you need a permit, right? And 717,000 permits have been issued – the highest amount since October 2008.
- Supply and Demand: The supply of homes has dwindled from three million to 2.43 million. That’s down over 19% from last year, and down 39.8% from the record of 4.04 million homes for sale in July 2007. That’s partly because falling prices and first-time buyer incentives have lured a great deal of homebuyers looking to move out from Mom and Dad’s (or as Buffett calls it, hormones).
- Bidding Wars. This limited pool of existing houses has triggered bidding wars, too. Redfin, an online brokerage firm, reports that agents were seeing multiple bids around half the time in Seattle, Boston, Washington D.C. and Oregon through March 15.
To top it off, The Wall Street Journal says that “the number of contracts signed to purchase previously owned homes rose in March to its highest level in nearly two years, up 12.8% from a year ago and 4.1% from February.”
Bottom line: Hard evidence and Buffett’s latest move indicate that a turnaround is in the works. So perhaps it’s time to believe that real estate has finally hit rock bottom. For real this time.