Buffett's Bold Bet: Exploring Warren Buffett's Latest Moves in the Housing Market
The U.S. housing market has recently faced considerable pressure due to significant interest rate hikes initiated by the Federal Reserve. However, this challenging environment hasn't deterred the venerable investor, Warren Buffett, from making substantial investments in the sector.
In Berkshire Hathaway Inc.'s latest 13F filing with the Securities and Exchange Commission, the conglomerate disclosed new positions in three prominent U.S. homebuilders. For those of us in the educated real estate investor community, tracking Buffett's moves remains a valuable exercise, given his unparalleled track record of delivering consistent returns over several decades. Indeed, from 1964 to 2022, Berkshire Hathaway achieved remarkable total returns of 3,787,464%, significantly surpassing the S&P 500's gain of 24,708% during the same period.
Warren Buffett is renowned for his contrarian approach to investment, famously advising,
"Be fearful when others are greedy, and be greedy when others are fearful."
This wisdom has guided his decisions throughout his illustrious career.
D.R. Horton Inc. (NYSE:DHI)
Berkshire's 13F filing revealed the acquisition of 5,969,714 shares of D.R. Horton during the second quarter, with the current market value of this stake standing at $693.6 million. D.R. Horton, headquartered in Arlington, Texas, claims the title of America's largest homebuilder by volume. The company operates in 33 states and boasts a diverse product portfolio, with homes ranging from $200,000 to over $1 million. Moreover, D.R. Horton extends its reach into single-family and multifamily rental property development.
In the fiscal quarter ending on June 30, D.R. Horton reported an 11% year-over-year increase in consolidated revenue, amounting to $9.7 billion. The number of homes closed rose by 8% to 22,985, while net sales orders surged by an impressive 37% to 22,879 homes. However, net income for the quarter experienced a 19% dip from the previous year, landing at $1.3 billion.
Following Berkshire's disclosure of its stake, D.R. Horton shares initially witnessed an uptick in value, though they later retraced some of these gains. Nevertheless, the shares have managed to post a respectable 28% gain in 2023.
Lennar Corp. (NYSE:LEN)
Lennar, another prominent player in the home construction sector, has been on the radar of savvy investors. Established in 1954, Lennar operates in various markets across the United States and delivered a notable 66,399 homes in fiscal 2022. Beyond its core homebuilding activities, Lennar offers financial services, including mortgage financing, title insurance, and closing services.
In the second quarter of Lennar's fiscal 2023, which concluded on May 31, the company reported a 4% year-over-year decline in revenue from home sales, totaling $7.6 billion. This dip primarily stemmed from a 7% decrease in average sales prices, partially offset by a 3% increase in the number of home deliveries. Lennar's Executive Chairman, Stuart Miller, noted that demand has picked up as consumers have adjusted to a "new normal" range for interest rates.
Berkshire acquired 152,572 shares of Lennar in the second quarter, which presently hold a value of $17.8 million.
NVR Inc. (NYSE:NVR)
Berkshire Hathaway also added 11,112 shares of NVR during the second quarter, amounting to a stake worth $67.5 million at the current share price of $6,078. NVR is engaged in constructing and selling homes under brands like Ryan Homes, NVHomes, and Heartland Homes. Additionally, the company has divisions encompassing building products, a mortgage subsidiary, and settlement and title services.
In the second quarter, NVR experienced a notable 27% year-over-year increase in new orders for its homebuilding business, totaling 5,905 units. However, the average sales price of these new orders dipped by 5% compared to the previous year, settling at $447,300. Interestingly, NVR stock has outperformed both D.R. Horton and Lennar in 2023, with shares marking an impressive 32% gain year-to-date.
While investing in homebuilder stocks provides one avenue to access the housing market, it's important to note that new opportunities have emerged for individuals seeking to generate passive income from real estate with minimal capital. These innovations have opened up avenues for individuals to invest in rental properties with as little as $100 while maintaining a completely hands-off approach. If you're interested, we encourage you to explore these exciting new possibilities in real estate investment.
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