Warren Buffett, the outspoken and ever so confident billionaire businessman is back at it making some bold predictions. This time he is back to dealing with the Real Estate industry. It was not long ago when we blogged about how just in March, Buffett even predicted that there would be a strong housing boost due to the high demand and low interest rates in the market. Now, he has made an outsize bid on ResCap loans showing how stern he is behind his contention that investing in Real Estate will prove to be a very lucrative decision in the near future.
New home inventories are at their lowest point in 5 decades with roughly only 144,000 of these properties on the market; this just barely below their six month threshold. This was according to Joe Light of the Wall Street Journal who was interviewed on this topic on the WSJ Live show known as News Hub. He noted that home prices are inching up now, and on a seasonally adjusted basis, have improved by 0.9% across the country from a year ago. The primary reason behind this is the vast momentum that home prices have been benefitting from.
It was only a year and a half ago when home prices rose for a year but only to then drop again. This evidently failed to provide the public with any inkling that a lasting recovery was in the near future. Despite this, the aforementioned momentum effect is currently in the industrys favor and the price-to-rent ratio is also back to the level they were at in 1998 or 2001, depending on what index one looks at.
If an individual is a retail investor, they can play the real estate rebound in two ways, Light highlighted. One of these ways is on the housing side and there are several home builders, such as KB Homes and Lennar, that some analysts think are poised to do well. Moreover, people like Frank J. Haggerty, the Portfolio Manager at Duff & Phelps Investment Management Co., are also investing in commercial real estate investment trusts. These forms of investment in commercial properties are taking advantage of that other side of the market.
Haggerty indeed favors Real Estate investment trusts to have shorter leasing times as well. Some examples of these investment trusts are properties such as apartment buildings and self-storage units that have short leases. In addition, the hope is that when the economy improves those who own these properties can raise their rents more quickly. Only the future will tell if these beliefs by Buffett and other experts will come to fruition. However these notions nonetheless must be respected as well-researched opinions on the direction of the Real Estate market and hence should not be ignored because if they are we unfortunately may miss this likely profitable bus.
More Information: Wall Street Journal