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Berkshire Hathaway Inc. CEO Warren Buffett knows a thing or two about the real estate market.
The investor and philanthropist shared one of his secrets to determining the market’s health during a 2010 Berkshire Hathaway Annual Shareholders meeting, which continues to be relevant today, Yahoo! Finance pointed out in a recent column. Buffett said at that time that a decline in housing starts could actually mean that the market is heading in the right direction.
“You want a bad number for a while,” the CEO said. “The only way you clean up an excess inventory is to have more demand than supply for a while.”
In other words, fewer housing starts can help lay the foundation for a more balanced market down the line.
In 2023, as the market slowed in the face of higher mortgage rates, Berkshire Hathaway acquired shares in three major builders, including D.R. Horton Inc., NVR Inc. and Lennar Corp., amounting to a nearly $800 million investment in total. That move proved the company’s long-term bet on the market’s resilience, despite the current conditions.
Now, in 2024, Berkshire Hathaway’s bet already seems to have been one made in the right direction. Inventory, affordability and mortgage rates continue to prove challenging, but economists have started to express optimism.
Realtor.com anticipates the market becoming more favorable to renters and buyers alike in the next year, according to its 2024 Housing Market Forecast and Predictions. The real estate company expects home prices to decline by 1.7 percent and mortgage rates to ease up to an average of 6.8 percent, dropping slightly to 6.5 percent by the end of 2024.
Meanwhile, Realtor.com expects rents to decline by 0.2 percent, giving a slight relief to renters’ wallets.
The inventory of existing homes is anticipated to decrease by 14 percent year over year, with many homeowners still unwilling to give up their ultra-low, pandemic-era mortgage rates. However, as new construction and rental supplies gradually enter the market, a more balanced housing landscape should start to take shape.
Buffett’s advice, and his own company’s actions, show how, time and again, real estate proves to be a stable investment. Those who are invested in the long run will eventually see positive returns that reflect the housing market’s growth potential.
