Buffett Calls for Real Estate Slowdown


The Oracle of Omaha, Warren Buffett has been very busy lately: the annual Berkshire Hathaway shareholder’s meeting and the purchase of a new company, Iscar, from Israel (his first overseas company purchase). Buffett is one of the richest people in the world, and is also acclaimed as one of the smartest investors, period. During the annual meeting Q&A, he responded to a few questions regarding real estate.According to CNNMoney, here are Buffett’s, and partner Charlie Munger’s take on things:

On the real estate bubble

Buffett: “What we see in our residential brokerage business [HomeServices of America, the nation’s second-largest realtor] is a slowdown everyplace, most dramatically in the formerly hottest markets. [Buffett singled out Dade and Broward counties in Florida as an area that has experienced a rise in unsold inventory and a stagnation in price.] The day traders of the Internet moved into trading condos, and that kind a speculation can produce a market that can move in a big way. You can get real discontinuities. We’ve had a real bubble to some degree. I would be surprised if there aren’t some significant downward adjustments, especially in the higher end of the housing market.”

On mortgage financing

Munger: “There is a lot of ridiculous credit being extended in the U.S. housing sector.”

Buffett: “Dumb lending always has its consequences. It’s like a disease that doesn’t manifest itself for a few weeks, like an epidemic that doesn’t show up until it’s too late to stop it Any developer will build anything he can borrow against. If you look at the 10Ks that are getting filed [by banks]and compare them just against last year’s 10Ks, and look at their balances of ‘interest accrued but not paid,’ you’ll see some very interesting statistics [implying that many homeowners are no longer able to service their current debt].”

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Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded BiggerPockets.com when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.


  1. Hi,

    Good article and nice quotes. Speaking of foolish financing, I recently ran some numbers on the latest 50-year mortgages and it was very interesting. Assuming that average person interested in these mortgages is acquiring them because they need to lower the monthly payments to afford the properties, they are actually increaseing their risk rather than decreasing it. Each increase in the interest actually affects them significantly more than normal!

    If you’re interested in the exact numbers, you can check out my latest article at: http://www.followsteph.com/News/50-YearMortgages.html

    Stephane Grenier
    LandlordMax Software Inc.

  2. Bruno Trapani on

    Comparing the day trading mentality to real estate investing seems a bit sophmoric, especially coming from the quintessential Buffet himself.

    Day traders buy and sell stocks throughout the day in the hope that the price of the stocks will fluctuate in value during the day, allowing them to earn quick profits. A day trader will hold a stock anywhere from a few seconds to a few hours, but will always sell all of those stocks before the close of each day. The day trader will therefore not own any positions at the close of any day, and there is overnight risk. The objective of day trading is to quickly get in and out of any particular stock for a profit anywhere from a few cents to several points per share on an intra-day basis.

    The “true” real estate investor is not driven by greed, or the opportunity to make a quick buck. They are driven by a “risk based confidence” that through their due dilligence, realizes or not, the opportunity to yield a higher return against other investments that are not as risky.

    Those looking in created much of what the bubble is made of…perception.
    Many of those who wanted more than just a peek and found themselves a return on their investment are just plain lucky.

    Many who make a living by representing clients in the marketplace, who buy & sell real estate, etc., I can assure you, are the ones who will help re-establish the marketplace.

    And those who journalized coverage on “the bubble” got their wish.

  3. I have been hearing so much about this housing boom bubble and how it will burst. I will tell you one thing that I have sure noticed. A lot of people are getting their real estate licenses.  I am not sure if this will affect supply or demand having so many “middle men” selling but it sure is a sign that real estate is hot. I hope it stays that way.

  4. Out here in Sacramento, CA we are starting to see the bubble bursting all over. I watched houses with bidding wars turn into houses that have been sitting on the market for 6 months or longer without any decent bids at all. And this happened over night. The real estate investing market is still good, but it is just evolving.

    Instead of the traditional version of speculate, buy, appreciate, rich…

    Now it’s a market full of pre-foreclosures, short sales, wholesaling, rehabbing, smart investing…

    I think the key is proper education for investors. Your average guy who thinks he is an investor because his home value doubled is going to get creamed if they use that same strategy now…

    But just to be fair, I think that if you can buy and hold for long term, as long as you are in one of the top 10 megapolitans then you are good to go…

  5. We have noticed several trends over the last several years here in Las Vegas. The appreciation rate has consistantly double and we have seen hundreds of different lending programs surface as a result. We have even seen 40 and 50 year mortgages!

    Good article.

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