Real Estate News & Commentary

What Warren Buffett Just Told Me About Real Estate is Great News for Investors

Expertise: Real Estate Investing Basics, Real Estate News & Commentary, Personal Development, Flipping Houses, Landlording & Rental Properties, Personal Finance
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warren buffett

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

multiunit-evaluation

Related: Real Estate Investment Advice From 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.

Mindy Jensen asks Warren Buffett about the housing market.

Mindy Jensen asks Warren Buffett about the housing 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.”

Related: The 3 Types of Asset Classes (& Why Investors Like Warren Buffett Don’t Put Their Money in Just One)

Good to hear, Warren.

market-index

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…

Mindy Jensen has been buying and selling homes for almost 20 years. She buys houses, moves in, makes them beautiful, sells them, and starts the process all over again. She is a licensed real estate agent in Colorado, author of How to Sell Your Home, and the community manager for BiggerPockets.com, where she helps new and experienced investors learn the proper ways to invest in real estate to grow their wealth. Mindy is an alumnus of the School of Hard Knocks and will happily share her experiences with anyone who asks. When you can get her to stop talking about real estate, you can find her on her bike or adventuring in the beautiful mountains of Colorado.

    Wilson Churchill from Madison Heights, Michigan
    Replied about 3 years ago
    I wouldn’t worry too much about a “bubble” unless the banks start offering “liar loans” again, or otherwise significantly loosen lending requirements. I do expect that we will see significant inflation in prices in the coming decades, but across the broad economy and not just in real estate.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 3 years ago
    Thanks for reading, Wilson. I hope you’re wrong about the significant inflation in prices, but I don’t think you are…
    Robert Chuang Realtor from Arcadia, CA
    Replied about 3 years ago
    Unfortunately I have been seeing some sub prime loan floating around in Los Angeles. Not sure if it will make a huge impact though.
    Robert Chuang Realtor from Arcadia, CA
    Replied about 3 years ago
    Unfortunately I have been seeing some sub prime loan floating around in Los Angeles. Not sure if it will make a huge impact though.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 3 years ago
    Thanks for reading, Wilson. I hope you’re wrong about the significant inflation in prices, but I don’t think you are…
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 3 years ago
    Thanks for reading, Wilson. I hope you’re wrong about the significant inflation in prices, but I don’t think you are…
    Joe Kim Rental Property Investor from SF Bay Area, CA
    Replied about 3 years ago
    I just watched “Too Big to Fail” movie. By the way Warren Buffet was involved in helping bail out Goldman Sachs. The chance of seeing an equivalent 2008 great recession is slim. Now that every bank is too big to fail and better regulations (But not perfect) are in place. However, real estate is very specific and regional. Certain markets are completely frothy like SF bay area that are at high risk for a downturn. In addition, the global markets are so inter-connected, US economy is vulnerable. Does anyone remember a relatively small and weak European country called, Greece? That caused a big scare and a downturn in late 2011? My home in SF bay area dropped 10% in value in less than 3-6 months. And then do you remember the banking scare in even smaller country of Cyprus that affected everyone around the world? Currently we have a great big GIANT country ….China that may shake and rattle. So my bet is that we are due for another recession and certain real estate markets will be adversely affected.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 3 years ago
    I haven’t seen Too Big to Fail yet, but it is at the top of my watch list, along with The Big Short. SF bay area is really ridiculous – especially to someone who isn’t living there. I’m in Denver, where we are only slightly less hot and I think it is ridiculous, too. After living through 2005-6-7 it’s easy to see rapid appreciation and think bubble.
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied about 3 years ago
    Folks have already forgotten the root cause of the real estate then stock market crash. It was not specifically liar loans. Yes there where some opportunist borrowers who never made even the first payment, or stopped after the 3rd. The root cause was job loss, that the geniuses in NY that famous Chinese take out midnight meeting where the inventors of the securitized subprime mortgage bundle bet that borrowers would stop paying their mortgage last, instead of first as how it happened. http://www.bls.gov/news.release/archives/empsit_01092009.pdf Look at the history of unemployment from beginning of 2008 to the end. The next real estate crash will no doubt in my mind have a similar root. Job loss. Next time you see big layoffs in your area, you landlords and flippers should now know what to do. Be the first to liquidate not the last. Sitting on cash even if too soon is not a bad place to be (other than the forced capital gains). True True Dodd Frank thankfully has legislated dramatically higher quality lending and the borrowers should NOW be able to take more down turn before defaulting. But as a landlord I know that besides huge medical bills there’s nothing worse on a budget than a job loss. I remember an enterprising fellow who was selling real estate market data based on city. Charting housing prices as if each city was a ‘stock”. It showed largely that real estate markets run in 15 yr up, 6 yr down cycles, then repeat. Just guessing that we have a few more years of up in the 15 yr cycle up from 2009 or 2010. Watch the quarterly jobs numbers, they have been runing 200k-250k positive. If they trend down under 100k or lower I would NOT be a buyer of flip projects or low cap high cost rentals. But there’s always safety buying the low cost low rent end of the market. Especially if your cost basis and debt costs are very low. Being strategic helps you be the last man standing if it comes to it. Hoping this chart stays above 200k, but it’s been recently trending the wrong direction. http://www.bls.gov/news.release/archives/empsit_04012016.pdf
    Hiren Shah Investor from Irvine, California
    Replied over 1 year ago
    Very nice analysis and fact reference.
    Mark Hughes Rental Property Investor from Aurora, CO
    Replied over 1 year ago
    I’ve never heard of the 15+, 6- cycle before, but have seen a lot of great research by Hoyt and Foldvary on the 18 year real estate cycle. There were only a couple exceptions in the last 200 years (mostly sites chicago as primary research) and I’m sure every market is a bit different. http://www.foldvary.net/works/rebc.html but definitely agree its better to be a couple years early than a couple years late. Plus i am more of a buy and hold investor for the long term (although I do a few flips here and there as well).
    David Dec Wholesaler from Tampa, Florida
    Replied about 3 years ago
    Curt, Do you remember the reference to the 15 year up, 6 year down cycle?
    Patrick Mueller Real Estate Agent from Streamwood, IL
    Replied about 3 years ago
    Very insightful info, Curt. I am also curious as to your source on the 15 up / 6 down cycle. Please let me know if you find it.
    Patrick Mueller Real Estate Agent from Streamwood, IL
    Replied about 3 years ago
    Very insightful info, Curt. I am also curious as to your source on the 15 up / 6 down cycle. Please let me know if you find it. Reply Report comment
    John Jacobus Rental Property Investor from New York, NY
    Replied about 3 years ago
    I attend the annual meeting every year too. I was curious if BP organized a group to attend given the overlapping core values of BP and Berkshire/Warren/Charlie. I was thrilled when you asked your question and gave a shout out to BP, Mindy. Really nice job! I think Warren would applaud the team at BP for their efforts to focus on the fundamentals of REI without all the hype.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 3 years ago
    I think Warren would love us, too. Now that we’re best friends, I’ll invite him, Charlie and Bill Gates to come check out the site!
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 3 years ago
    I think Warren would love us, too. Now that we’re best friends, I’ll invite him, Charlie and Bill Gates to come check out the site!
    David Krulac from Mechanicsburg, Pennsylvania
    Replied about 3 years ago
    Mindy, Thanks for going to the Oracle, I’d like to go sometime myself. I agree with Mr. Buffett, there is no bubble here in Pennsylvania and Delaware. Nice post, thanks. David Krulac
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 3 years ago
    David, 2017 should be the year you go… B shares are running around $145 right now. Warren is 86 and Charlie is 92. This won’t last another 10 years…
    William Morrison Investor from Silver Spring, Maryland
    Replied about 3 years ago
    Sounds like you had fun. His qualifier has been his mantra for ever. He’s not into stock market short term timing. But does seem to see discounted price to long term value. BRK-B is his idea of a split . And that was because of pressure from his long term investors to have a product for their kids and grand kids. You can tell a little about what he think of your market by what their purchase rate of real estate is in your area by their holding company. Others to watch are Blackstone and Colony Capital. Data has some lag because the reporting times, but they do have to report. It’s not what they own but dollars per month being invested in an area that’s important.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 3 years ago
    William, this is a really fun spectacle, and every year could be the last one. Warren’s 86 and Charlie’s 92. I will miss them when they’re gone…
    Robert Easter Investor from New York City, New York
    Replied about 3 years ago
    First sign of a bubble is… People speculating there is a bubble… Second sign of a bubble is… Smart people relying on the opinion of those they perceive as smarter saying there isn’t one…
    ion-christopher
    Replied about 3 years ago
    Two most important points – SOME U.S. zones (OMAHA??) remain a good value. Mr. WB didn’t mention there is a ton of cash coming in from people hiding assets from around the world – we have some of the loosest laws for shell companies and who run them! I know – hard to believe. Secondly it is profoundly scary to think that we are repeating EXACTLY THE SAME ERROR of confusing payment with total debt. You have to PAY BACK the balance with your cash flow – which gimmick loans pre-loaded the whole economy to fail with. (What were they thinking? Pretty much to the end of their noses.) So people are only one step from being IMMOBILIZED AGAIN – remember when no one could buy and no one could sell – you just had to grin and rent it for what you could get or die. 🙂 Not that you can’t get rich riding the wave – but that wave was best in 2012.
    Kyle Bigger
    Replied about 3 years ago
    Mindy Jensen – Great article! Although, I don’t think Warren Buffet was a founder of Berkshire Hathaway. I believe Oliver Chance(?) was that man, and Buffet purchased it(?) and years later stated in a Q&A that it was probably the worst investment he ever made
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 3 years ago
    The actual, original Berkshire Hathaway was not started by Warren, and Charlie, you are correct. But Berkshire Hathaway in its current iteration is the Berkshire Hathaway I was talking about.
    Michael Swan Rental Property Investor from San Diego, CA
    Replied about 3 years ago
    It is most certainly a market by market analysis. In San Diego, where I live, I see prices rapidly approaching their peaks, before the bubble burst. As any other investment, you need to be aware of this and utilize the equity by refinancing or 1031 exchanging into markets that are clearly in a buyers stage 1 or stage 2 environment. Make sure you go in with your eyes open and realize that if you don’t utilize the equity stuck in a rapidly rising market, this reality may be merely an illusion, albeit a very persistent one. Make sure you run a return on equity calculation and see what kind of return your equity is really getting. If you change the way you look at things, the things you look at change right before your eyes!!! Swanny
    Hiren Shah Investor from Irvine, California
    Replied over 1 year ago
    I agree with you. Real estate is personal situation and there is no standard rule. Everyone will not win all the time. Long term strategy has low risk but short term less then 5 year has lot more risk at this stage of market in high price california area.
    Sean
    Replied about 3 years ago
    Warren has been especially bullish on the housing markets in the past few years…especially since he started buying up brokerages and mortgage companies. I’m not necessarily saying he’s wrong, but just keep in mind everyone has an angle/motivation behind their comments.
    Hiren Shah Investor from Irvine, California
    Replied over 1 year ago
    Why did Buffet sold his 15 million property at Laguna Beach? Does he think its peaked the investment in Orange county?
    Linda Liberatore Real Estate Investor from Schaumburg, IL
    Replied about 3 years ago
    Mindee, I also watched and was a proud member of the BP family when you spoke. Great Job!
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 3 years ago
    Thanks, Linda!
    Bernarr Pardo Investor from Henderson, Nevada
    Replied about 3 years ago
    As Warren suggested, and we all (should) know, real estate markets are different in different cities, sometimes wildly. You can never generalize much that is based on geography (eg, employment, housing prices). There were a number of adjustable loans and HELOCs made in 2007+ that will start re-adjusting or come due soon: watch out. Also, if one had to generalize, housing prices have gone up, but average income has not followed. While official employment data seem to be good, many of the jobs created were lower wage jobs, and many were part-time. Then there is the $1.3 trillion in student debt: they won’t be looking to buy a home soon.
    Tarek Soliman Investor from Austin , Texas
    Replied about 3 years ago
    The housing bubble in 2008 was mainly created because the easy credit for unqualified people. However some of this is happening again, but that didn’t really intact the crash and made the panic. The crash was result of a big panic than followed by frozen credits and loans . when the credits and loan got frozen which means no more buying or investing activity. Which primarily lead to more supply than demand and people started to sell off their losing value homes. of course I am not disregarding the CDOs market causes in 2008 which was huge gambling, and i think we don’t have this anymore. As you see it’s not about overpriced home its about how much availability credit to home buyers and investors. Keep in mind most the housing activities are happening because of the investors not the retailer buyers yet. I would say the RE investors made a tremendous job in the house recovery.
    Jon H. Investor from Kent, Washington
    Replied about 3 years ago
    Thanks for sharing Mindy, I think you asked the question eloquently. This is a great event I didn’t know existed. Definitely going to watch some of this broadcast!
    Michael Rogers Certified Public Accountant from Chattanooga, Tennessee
    Replied about 3 years ago
    Way to go Mindy! I was able to watch a lot of the meeting on Yahoo livestream this year. I really liked that a lot since I live in TN and it’s hard to get out to Omaha.
    Christian Ambrose from Sparks, Nevada
    Replied about 3 years ago
    Great job Mindy! I too wish to attend the meeting in 2017 and hope to see Warren and Charlie while they’re still around. I always wanted to ask him that question and I am elated that you did! Thank you for representing BP.
    Kevin
    Replied about 3 years ago
    I personally think the market crash had more to do with oil and the high price of gasoline. Not only were people paying exorbitant amounts to fill their tanks, groceries were higher due to the related increase in transportation costs. Just look at oil’s high point, and the start of the crash. People chose to put gas in their cars to get to work to make a paycheck to provide for their families over a mortgage payment they could no longer afford.
    Ken D. Investor from Boise, Idaho
    Replied over 1 year ago
    5 dollar gas driving a 4 wheel drive 12 miles to the gallon. $100 bucks to fill the tank 2008, big oil said $7.00 bucks a gallon next. On top of that you could not borrow any money even if you had equity , banks were not lending.
    Sarah K. Real Estate Investor from Rockville, Maryland
    Replied about 3 years ago
    Interesting point. I always thought if gas prices were high then it would affect everything else, like real estate, as well. I have read many articles that argue when oil prices are low that’s when the economy begins to slow. Articles state that lower gas prices means less production which leads to layoffs. Personally, I don’t know which way is right! Wouldn’t paying less gas give more money in people’s pocket? Or do people really get laid off?
    Sarah K. Real Estate Investor from Rockville, Maryland
    Replied about 3 years ago
    Thanks for sharing. It’s an interesting article and make me wonder…did Warren Buffett see the 2007 crash coming or would he have said that real estate is still safe? I’ve often felt that we could be in a bubble or at least housing prices must come down. In my area (DC), the cost of housing as been on the rise. How much longer can these million dollar prices be sustained? Did Buffett ever comment in 2007? I do see his reference to previous bubbles, hinting that bubbles are inevitable and you have to look at the big picture and not be over zealous with the micro (current) situation.
    Peter Mckernan Residential Real Estate Agent from Newport Beach, California
    Replied about 3 years ago
    This is a good article Mindy, and good job asking the question to the great man himself. I would say that with the prices today that are pretty high in a lot of different areas, it may seem just a little odd to have such high prices and no possible bubble. That being said, I believe that a drop in another area of the economy will case a domino effect eventually (within the next year and a half), and it will cause some areas to really feel it. Case-in-point the oil industry not doing so well at the current moment. The last Bruce Norris Podcast I was able to listen to had a gentlemen that spoke about the 10-year T Bill and the 2-year T Bill and it the 10-year rate drops below the 2-year we could see a recession. Thank you for the article!
    Vamshi Ananth from Toronto ON, Canada
    Replied about 3 years ago
    I have some experience analyzing equities but I am new to real estate. What is see so far in 2016 is the stock market has gone nowhere except sideways and at times dropping like a knife again rip high just to get to where it was before. I do however notice that the best performing asset class so far in 2016 are precious metals ( up almost 20% Ytd) . I feel this does signal a coming stock market correction. If and when the stock market correction happens I do feel the SF bay area real estate market might also take a breather. Given the fact that this place mostly houses tech startups/giants and companies like Intel have started restructuring their work force, I wonder what it means to the real estate market out here going forward.
    steve g
    Replied about 3 years ago
    I think Warren may be right, However, I see prices and competition increasing, and because of that, its never a bad thing to keep a very close eye on the situation , say doing an analysis every 3 to 6 months just to be sure . Its difficult to predict, but always a little info can help avoid problems. Remember though, just because there may be a bubble in 1 area, doesn’t mean there is a bubble everywhere. If a bubble materializes in the single homes sector, maybe it would be a good time to concentrate on multi family or maybe another city or state.
    jsid joe
    Replied over 2 years ago
    that’s not bfx. not at all
    Jeremy Kuchenbecker Investor from Winter Garden , Florida
    Replied almost 2 years ago
    In almost every single ‘bubble’ that has been created in existence, you see exponential growth in the form of a “J” curve. We are not there now.
    Christi Hawkins from Columbus, Ohio
    Replied almost 2 years ago
    Love this Mindy!! You can’t find any better advice than from Warren Buffet. Thanks so much for sharing this