What Warren Buffett Just Told Me About Real Estate is Great News for Investors
Every year at the beginning of May, I make the trek to Omaha, NE to see my best friend in the whole world*, Warren Buffett, for the Berkshire Hathaway Annual Meeting.
Warren Buffett and Charlie Munger founded Berkshire Hathaway 51 years ago and have grown it into the company that has held the title “most expensive stock on the market” pretty much since they started. They don’t believe in stock splits — and have just let the company ride.
Berkshire Hathaway is a different kind of company. They purchase other companies that they feel are a great value and then let them do their thing, operating under the Berkshire Hathaway umbrella.
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” — Warren Buffett
How Does Warren Buffett Feel About Today’s Market?
Every year, they take questions from analysts, journalists — asking on behalf of shareholders who can’t make it to the meeting — and shareholders around the auditorium. This year, I was able to ask my close, personal friend* Warren for his take on the real estate market.
(…I work at BiggerPockets…)
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“We’re seeing investors starting to get concerned that the real estate market is a bit frothy, similar to the run up of 2005, 2006 and 2007 that led to the crash in 2008.
Warren, in 2012, you told Becky Quick that if you had a way to easily manage them, you’d buy 100,000 houses and rent them out.
How do you feel about the real estate market today?”
Warren responded that now is still a good time to buy a house, although he liked the market a lot better in 2012. (Me too, Warren.)
He went on to say that he doesn’t feel that we are in a bubble, that we aren’t paying bubble prices, and “I don’t see a nationwide bubble in residential real estate at all.”
Good to hear, Warren.
Will 2008 Repeat Itself?
He continued, “In Omaha and other parts of the country, people are not paying bubble prices for real estate.”
He discussed properties being sold at very low cap rates as “Not a very good investment,” and acknowledges that with these low interest rates on mortgages, buyers may be purchasing homes at prices that may cause them to eventually lose money.
He acknowledged that real estate was a factor in 2008 but said, “I don’t think we will have a repeat of that,” although he acknowledged he isn’t any better at predicting the real estate market than he is at predicting the stock market.
I don’t know, Warren. You’ve done pretty well in stocks…
So there you have it from the horse’s mouth. The most successful investor since the beginning of time doesn’t feel we are in a housing bubble and doesn’t feel the real estate market is frothy.
Watch me awkwardly ask my question here, and see his entire response. (Scroll ahead to 6:10:50 to see just my section or watch the entire 8 hours.)
I’ve seen several comments in the forums about a housing bubble, but I wasn’t seeing it before I talked to Warren. His comments are reassuring.
Do you agree with Mr. Buffett’s assessment of the market? Why or why not?
Let’s chat in the comments section below.
*Legalities and honesty force me to admit that my best friendship with Warren might be one-sided…