Warren Buffett, chairman and CEO of Berkshire Hathaway, is widely regarded as one of the world's most successful investors. He recently appeared live on CNBC's Squawk Box program, Monday, February 27, 2012, for his annual "Ask Warren" three-hour marathon. Among the many topics covered was the housing market. Here is Warren's latest advice on investing in that area.
Buffett began by pointing out, "...equities are still cheap relative to any other asset class," but added, "I would say the single-family homes are cheap now, too." He then made this startling statement:
"If I had a way of buying a couple hundred thousand single-family homes... I would load up on them."
He admitted that he would need a way to manage so many residences: "... the management is... really the problem because they're one by one. They're not like apartment houses." But if it were practical, he would "load up on them and I would take mortgages out at very, very low rates."
He then offered an insightful summary of the current situation in the housing market: "If anybody is thinking about buying a home -- five years ago they couldn't buy them fast enough, because they thought they were going to go up, and now they don't buy them because they think they're going to go down. And interest rates are far lower."
Keying off the low mortgage interest rate situation, he pointed out:
"It's a way, in effect, to short the dollar, because you can take a 30-year mortgage and if it turns out your interest rate's too high, next week you refinance lower. And if it turns out it's too low, the other guy's stuck with it for 30 years. So it's a very attractive asset class now."
Buffett was then asked, point blank, if he were a young individual investor who had to choose between buying a first home or investing in stocks, which one would be the better bet? His characteristically direct answer:
"...if I knew where I was going to want to live the next five or 10 years, I would buy a home and I'd finance it with a 30-year mortgage and it's a terrific deal."
He followed that with this business idea:
"... if I was an investor that was a handy type, which I'm not, and I could buy a couple of them at distressed prices and find renters -- and again take a 30-year mortgage -- it's a leveraged way of owning a very cheap asset now and I think that's probably as attractive an investment as you can make now."
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And a final note: Buffett wrote in his latest letter to Berkshire Hathaway shareholders: "Housing will come back -- you can be sure of that."
Remember, we're always here to answer any questions.... Have a great day!
P.S. So with today's mortgage rates at historic new lows and with very affordable home prices, this is a great time to upsize, downsize or refinance. Please call or email us now to discuss your situation.
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