If Housing Is Headed for a Crash, Why Did Berkshire Just Spend $8.5B on a Homebuilder

Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes

@Frank Ransom I do believe Berkshire Hathaway is making a smart bet, but as always they are thinking in decades, not years.

Their $8.5B acquisition of homebuilder Taylor Morrison comes straight from Warren Buffett's playbook: "Be greedy when everyone else is fearful!"

Now is the best time to buy a homebuilder, if you are prepared to wait patiently.

And, they are!

However, I don't see this as necessarily a strong positive vote for the short-term fate of housing.

Berkshire isn't like the rest of us. Right now they're sitting on $400 billion in cash reserves, so this acquisition is barely a footnote on their balance sheet.

Also, Taylor Morrison isn't just a builder. They also have a financial services arm that originates mortgages, sells title insurance, and writes homeowner policies.

So, no matter what happens to U.S. real estate over the next few years, Berkshire will do just fine.

The same cannot be said for the real estate investors here on BiggerPockets, most of whom will get TOTALLY wrecked if we see another 2007-style real estate collapse.

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

4mo

Berkshire isn't investing to make money today, this month or even this year.

They are investing for the long-term.

So, they are probably anticipating this investment paying off in the next 3-5 years.

Newbies can learn from this - real estate investing is typically a long-term investment, more akin to retirement investing than day-trading.

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Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

4mo

Quote from @Frank Ransom:

Berkshire just spent $8.5 billion acquiring a major homebuilder.

Meanwhile, a lot of investors are still debating whether housing is headed for a major correction.

That got me thinking.

Berkshire could have deployed that capital almost anywhere. Instead, they chose housing. Not when rates are low. Not when transaction volume is booming. Not when sentiment is euphoric.

Right now.

Obviously, Berkshire isn't always right, and they aren't buying the same deals most of us are. But when sophisticated capital makes a move that size, I think it's worth paying attention.

Do they see a long-term housing shortage that the market is underestimating?

Do they believe affordability eventually improves and demand comes back?

Or are they simply betting that housing remains one of the best long-term businesses in America?

What do you think Berkshire sees in housing over the next 10 years that the average investor might be missing?

Here is a good article I read outlining what they may have been considering/why. When you are sitting on $300B in cash and can buy something you believe is undervalued in an asset class that is typically very resilient, I believe thats a good move.

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V.G JasonPro Member

Investor · Member since 2022 · 3k+ posts · 3k+ votes

4mo

Before we give Berkshire any credit, you realize Japan has been way way way in front of this right?

They're converting capital that's making 2.8% net into a bottle neck asset that's heavily undervalued due to short term headwinds.

The question isn't what we're missing and what they're finding, the question is would you do the same thing with this much capital?

If you're trading the trend, this is absolutely the worst thing to do. If you're buying with no term period in sight; this is a very good piece to buy. There's no mistake that the same strategy that these Japanese funds have been doing-- all same train of thought. Most of the folks here think in days, weeks max. They think in decades.

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Kevin PolitePro Member
Investor · Decatur Atlanta, GA · Member since 2011 · 612 posts · 232 votes
4mo
Quote from @V.G Jason:

Before we give Berkshire any credit, you realize Japan has been way way way in front of this right?

They're converting capital that's making 2.8% net into a bottle neck asset that's heavily undervalued due to short term headwinds.

The question isn't what we're missing and what they're finding, the question is would you do the same thing with this much capital?

If you're trading the trend, this is absolutely the worst thing to do. If you're buying with no term period in sight; this is a very good piece to buy. There's no mistake that the same strategy that these Japanese funds have been doing-- all same train of thought. Most of the folks here think in days, weeks max. They think in decades.
Japanese companies are buying home builders as well. Combine that with Berkshire Hathaway and I say that’s a trend. This is more a stock play then a real estate play but I think it says something when you have multiple companies buying in this industry. https://www.realtor.com/news/real-estate-news/japanese-homeb...
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If Housing Is Headed for a Crash, Why Did Berkshire Just Spend $8.5B on a Homebuilder

If Housing Is Headed for a Crash, Why Did Berkshire Just Spend $8.5B on a Homebuilder

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