Warren Buffett Explains Why This ‘Bad’ Number Indicates Good News For The Real Estate Market — One Of His Favorite Housing Metrics To Watch Signals A Shift

Berkshire Hathaway Inc. CEO Warren Buffett is renowned not just for his investments in blue-chip stocks but also for his advice on market dynamics. At the 2010 Berkshire Hathaway Annual Shareholders meeting, he revealed his approach to evaluating market health.

Buffett articulated a somewhat paradoxical metric, suggesting that a decrease in housing starts could signal a healthier market ahead.

“You want a bad number for a while. The only way you clean up an excess inventory is to have more demand than supply for a while,” he said.

This advice illuminates the counterintuitive wisdom that sometimes, less immediate growth (in terms of new housing starts) could pave the way for a more balanced and sustainable recovery in the housing sector.

Fast forward to August 2023, and Buffett’s Berkshire Hathaway proved its faith in the housing market’s potential by making a substantial investment in the sector. The conglomerate acquired shares in not one but three major homebuilders: D.R. Horton Inc., NVR Inc. and Lennar Corp., with a combined investment nearing $800 million. This move was a vote of confidence in these companies and a broader bet on the housing market’s resilience and potential for growth. It reflected Buffett’s knack for identifying value even in sectors that may be perceived as under duress or facing near-term headwinds.

In 2024, the housing market is complex, marked by challenges related to affordability, inventory levels and mortgage rates. Yet, it is also a time of cautious optimism, with predictions pointing toward a slight improvement in market conditions.

Realtor.com’s 2024 housing forecast indicates a market slowly shifting in favor of buyers and renters, supported by a slight ease in home prices and mortgage rates alongside a mild decline in rents. Specifically, the forecast anticipates a 1.7% decrease in home prices and a subtle drop in mortgage rates to an average of 6.8%, with a slight decline to 6.5% by the end of the year.

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