{"id":167166,"date":"2024-02-16T12:57:19","date_gmt":"2024-02-16T19:57:19","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=167166"},"modified":"2024-03-01T02:00:22","modified_gmt":"2024-03-01T09:00:22","slug":"warren-buffett-is-buying-construction-stocks-should-you","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/warren-buffett-is-buying-construction-stocks-should-you","title":{"rendered":"Warren Buffett Is Investing in New Construction\u2014Here\u2019s Why You Might Want to as Well"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC1070060731\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p class=\"wp-block-paragraph\"><em>This article is presented by Park Street Homes. Read our&nbsp;<a href=\"https:\/\/www.biggerpockets.com\/blog\/editorial-blog-guidelines\" target=\"_blank\" rel=\"noreferrer noopener\">editorial guidelines<\/a>&nbsp;for more information.<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">If you\u2019ve been paying attention to news in the real estate sector, you will know that new construction has faced many challenges since the beginning of the COVID-19 pandemic. From rising prices of construction materials to labor shortages and, most recently, high mortgage interest rates, the homebuilding industry has had more than its fair share of hard knocks. Indeed, homebuilder confidence dropped for three consecutive months in 2023.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">And yet one of the most respected, successful investors out there invested in three big construction companies last year. Warren Buffett\u2019s Berkshire Hathaway disclosed investments in D.R. Horton, Lennar, and NVR, with a total investment of $814 million. And that\u2019s against Berkshire\u2019s overall wait-and-see approach.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">When Buffett invests, it\u2019s worth paying attention to what he\u2019s doing. Smaller investors have long mimicked Buffett\u2019s behavior, and his decisions have considerable sway over the stock market. Following the disclosure of Buffett\u2019s construction investments, shares of D.R. Horton increased 2.8%, and Lennar\u2019s went up 2%.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Why Investing in Homebuilding in 2024 Is a Good Idea&nbsp;<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">If you\u2019re a real estate investor, what should you make of this move since it seems as if Buffett\u2019s vote of confidence goes against the grain of an overall environment of low confidence in the sector? What does Buffett know that we don\u2019t, and should investors consider copying his strategy?&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">On its face, there\u2019s nothing especially controversial about Berkshire\u2019s investment strategy. All three construction companies that were picked for investment are long-standing players in the sector with reliable growth rates. They\u2019re not risky investments.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">However, the fact that Buffett singled out the construction industry from other potential investment opportunities does stand out. Buffett\u2019s decision is, in a sense, a shrewd prediction of where the real estate market is headed.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">The single most persistent factor shaping real estate over the past three years has been the extremely limited housing inventory across the U.S. This limited inventory is continuing to prop up housing markets even after they become largely unaffordable for buyers. Home prices keep going up despite massive interest rate hikes for one simple reason: There aren\u2019t enough homes to go around.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">We are now at an important threshold. 2024 will show us what the longer-term trends for mortgage rates will be going forward. Rates may come down somewhat or stay at their current levels for a while.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Whichever scenario unfolds, buyers who are holding back for now are likely to just take the plunge and go for it eventually because the need for a home is greater than the willingness to wait for a more auspicious time to buy.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">And here\u2019s where the construction industry comes in. Realistically, only increased new homebuilding can satisfy the current levels of demand. Even if and when existing home inventory improves, it won\u2019t be enough to close the supply-demand gap.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Many existing homeowners simply don\u2019t want to sell because that would mean giving up their pre-2022 low mortgage rates. Buyers are increasingly buying newly built homes\u2014a behavior that will grow in the coming years. The&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.nar.realtor\/magazine\/real-estate-news\/new-construction-makes-up-record-share-of-inventory#:~:text=The%20National%20Association%20of%20REALTORS,home%20market%20for%20greater%20choices.\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">National Association of Realtors<\/span><\/a><span data-preserver-spaces=\"true\">, for example, predicts that new home sales will rise 13.9% in 2024, up from 12.3% in 2023.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">It\u2019s like a mutual confidence-building exercise: Once buyers\u2014and investor buyers\u2014get buying, whatever the interest rates, the construction sector will increase building because it will have more evidence of the profitability of doing so. And once new homebuilding picks up, buyers (and renters) will have more choices of affordable homes, which is exactly what they need.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">So, How Can Real Estate Investors Get in on This Trend?<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">This has got to be the chain of events Buffett is anticipating with his investment strategy. His long-term thinking has paid off many times in the past, so real estate investors definitely should be paying attention to the construction sector.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">This doesn\u2019t mean that you have to buy shares in the same companies Buffett has. You may well get a better return over time if you invest in smaller but promising homebuilders that have the right plan. Look for firms that are prudent with where and how much land they buy and how fast they build. You want to see reliable completion rates in housing markets that are hot (read: affordable and popular with buyers and renters).&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"http:\/\/startengine.com\/parkstreethomes\" target=\"_blank\" rel=\"noreferrer noopener\"><span data-preserver-spaces=\"true\">Park Street Homes<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;is one such company. It offers an exclusive opportunity to invest in the future of urban housing and new construction homebuilding for as little as $500. With Park Street Homes, you can make a direct investment in a booming industry and diversify your portfolio. Sit back and watch your wealth grow while simultaneously supporting the growth of sustainable communities through new construction.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">It is important to remember that this type of investing is definitely a long game. However, if you\u2019re looking to diversify your&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/building-scaling-real-estate-portfolio\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">portfolio<\/span><\/a><span data-preserver-spaces=\"true\">, new construction is a pretty good bet.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"wp-block-group border border-gray-200 p-6 rounded-md has-slate-50-background-color has-background\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n    \n  <div \n    id=\"segemnt-view-event-block_6744a44f807b699e97897e8eb1b79d13\" \n    class=\"  \"\n    x-intersect:enter.once=\"\n      analytics.track('DoorLoop Blog Sponsor View', {\n        referrer: 'https:\/\/www.biggerpockets.com\/blog\/warren-buffett-is-buying-construction-stocks-should-you',\n              })\n    \">\n    \n  <\/div>\n  \n\n\n<h3 class=\"wp-block-heading has-text-align-left mt-0\"><strong>This article is presented by Park Street Homes<\/strong><\/h3>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"497\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/Park-Street-Homes-Logo-TransparentTM-e1708113151424-1024x497.png\" alt=\"\" class=\"wp-image-167172\" style=\"width:361px;height:auto\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/Park-Street-Homes-Logo-TransparentTM-e1708113151424-1024x497.png 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/Park-Street-Homes-Logo-TransparentTM-e1708113151424-300x146.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/Park-Street-Homes-Logo-TransparentTM-e1708113151424-768x373.png 768w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/Park-Street-Homes-Logo-TransparentTM-e1708113151424.png 1395w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Park Street Homes offers an exclusive opportunity to invest in the future of urban housing and new construction home building for as little as $500. With Park Street Homes, you can make a direct investment in a booming industry and diversify your portfolio with real estate. Sit back and watch your wealth grow while simultaneously supporting the growth of sustainable communities through new construction.<\/p>\n\n\n\n<div id=button-custom-event-block_8b57b8589c3bb253c7478a65811ec475 class='button-custom-event'>\n      <a href=\"http:\/\/startengine.com\/parkstreethomes\" x-on:click=\"window.analytics.track(&#039;Sponsored Blog CTA Click&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/warren-buffett-is-buying-construction-stocks-should-you&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\" rel=\"noopener\">Learn More About Park Street Homes<\/a>\n  <\/div>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\"><\/div>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>This article is presented by Park Street Homes. Read our&nbsp;editorial guidelines&nbsp;for more information. If you\u2019ve been paying attention to news in the real estate sector, you will know that new [&hellip;]<\/p>\n","protected":false},"author":613724,"featured_media":167168,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8,7119],"tags":[],"class_list":["post-167166","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/167166","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613724"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=167166"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/167166\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/167168"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=167166"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=167166"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=167166"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}