Warren Buffet on the USA Housing Market

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Berkshire Hathaway
February 25, 2012 | Warren E. Buffett

Warren Buffett makes several key USA housing points in the annual Berkshire Hathaway Shareholder meeting, which are quite interesting for all foreign investors who are considering buying house in usa:
Housing completions have been at record lows.
1 ) There are currently more households being formed than new housing units completed, and this is decreasing the excess supply.
2 ) The excess supply will be “sopped up” at different rates across the country.
3 ) Housing is a key reason for the sluggish economy (not the only reason).

Housing will come back – you can be sure of that. Over time, the number of housing units necessarily matches the number of households (after allowing for a normal level of vacancies). For a period of years prior to 2008, however, America added more housing units than households. Inevitably, we ended up with far too many units and the bubble popped with a violence that shook the entire economy. That created still another problem for housing: Early in a recession, household formations slow, and in 2009 the decrease was dramatic.

That devastating supply/demand equation is now reversed: 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.

At our current annual pace of 600,000 housing starts – considerably less than the number of new households being formed – buyers and renters are sopping up what’s left of the old oversupply. (This process will run its course at different rates around the country; the supply-demand situation varies widely by locale.) While this healing takes place, however, our housing-related companies sputter, employing only 43,315 people compared to 58,769 in 2006. This hugely important sector of the economy, which includes not only construction but everything that feeds off of it, remains in a depression of its own. I believe this is the major reason a recovery in employment has so severely lagged the steady and substantial comeback we have seen in almost all other sectors of our economy.

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2 Responses to “Warren Buffet on the USA Housing Market”

  1. Posted by Fei 17th April, 2012 at 9:27 am

    I plan to buy one property in USA this year. The problem is where. Now I am thinking about Florida, but I don’t know if Florida is a good place to do the long term renting since it is city for tourism

    I guess in the present real estate market, the price is really good compare with Canada, so the most important thing is to find a good property manager, which is kinda risky and depend on lucks

  2. Posted by admin 27th June, 2012 at 5:38 am

    Hi Fei,

    I was considering Florida in the beginning as well. However there are huge insurance costs every year, which can make your investment not to cash flow well. Also I am concentrating now more on the better price-to-rent ratio markets. Check the the article I wrote about this last year. I don’t speculate for the growth as much now, rather invest for long term buy and hold strategy.