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welcome back to real estate mindset today's video is going to be absolutely Bonkers now the data is in and was Warren Buffett right about the stock market or was he reading the wrong signals and did he make a very costly mistake by investing so heavily in the stocks of new home builders So today we're going to go over an article that's going to go into detail whether or not they believe that Warren Buffett made the right decision now personally I find it hard to believe that he made the right decision one of the reasons that is is because the supply of new houses right now is astronomic we're sitting at 7.8 months of supply for new homes in order for the market to be considered a buyer's market it needs to be six months so we are well over the six months required for the market to be considered a buyer market and not only that as we can see here from this graph new home prices have never rebounded even in the face of outrageous buying incentives the prices the median sales price of new homes is down 133% from October of last year and we can really see how aggressive some of these new home builders are being with their buying incentives for example lenar is now offering a 4.5 they were offering a 4.25 but they're offering a four and a half 4 a half% 30-year fixed rate and $10,000 back towards closing cost this is in my own local housing market but on top of that ridiculously low interest rate they're also slashing the prices on almost all of their inventory in spec homes you guys can see here that some of these houses are being slashed 15 to 20% the first one's being slashed for 83,000 and the second one for 77,000 and this is happening around the nation not just with lenar and on top of that home builder sediment goes negative for the first time in 7 months thanks obviously to high mortgage interest rates now as far as the stock as of the making of this video it's about 108 and I believe when Warren Buffett purchased he was at about I think $130 so personally I'm not sold that he did make the right decision but we're going to read an article from investor place that's going to give us some additional perspective on whether or not he did the right thing and if you guys can do me a favor like this video and understand I'm not a financial adviser I'm just a normal guy trying to be transparent and guide us through the uncertainty in the housing markets and this will be linked in my description the name of this article is housing market crash of 2024 did Warren Buffett read the signals wrong the Oracle of Omaha went deep into the housing sector he invested in lenar NRV and DR Horton so the number one biggest new home builder and the number two biggest home builder as well people seem to be worried about a housing market crash Warren buffin isn't one of them according to this article Buffett's most recent 13f filing shows he bet big on the housing Market Buffett Dove head first into the sector and bought shares of three home builders data however doesn't discount a housing market crash again the National Association of Realtors is now starting to get worried about a housing market crash what does that tell us y'all it shows existing home sales in August fell to their lowest point since the start of last year mortgage interest rates which hit 7.31 % last week are their highest since the year of 2000 and as of the making this video rates are over 7.7% right now and they're probably going to hit 8% at some time this year and the 10 years is probably going to hit 5% despite that the average us home price of 495,000 remains stubbornly High I agree although down from last year's record 552 th000 so I don't know if you guys understood but we're down off peak on average $57,000 still so we're still $57,000 on average below the last Peak it's over double the average of 210,000 price from the year 2000 High interest rates and high home prices are not normal thank you investor place home builders do best in Falling rate environment it suggests a housing market crash could occur in 2024 investors can only ask did Buffett read the market wrong let's look at each of the builders he bought and see why he might have decided now was a good time to buy whether there's a housing market crash or not starting with lenar the home builder Buffett bought the fewest shares of is Lenard he purchased shares worth only $18 million it is the second largest home builder by the number of homes delivered and set to capitalize on the housing preferences of home buyers in its last investor presentation lonard noted Florida was its biggest Market I'm actually surprised with 29% of its 50,000 homes all or so total deliveries lenar is also Diversified Home Builder with a presence in 19 States it offers homes across a full spectrum of firsttime move up active adult and luxury the average price of homes is 448,000 below the national average and down from almost $500,000 last year deliveries and new home orders are showing strength despite conditions year-to-date deliveries are up 6% to new orders were up 8% to over 51,70412 per share it also pays a 1.1% dividend here's NRV Buffett bought $67 Million worth of NRV so way more NRV it's the smallest of the three home builders with a market cap below 20 billion unlike lenar it doesn't pay a dividend the stock is also down only 7% from alltime high it hit this summer NRV focuses on building homes in 15 states primarily in the Mid-Atlantic Southeast and Midwestern regions the Washington DC metropolitan area represents 21% of total revenue that's interesting it sells homes under three brand names Ryan Homes NV homes and Harland homes each is a different quality level its average selling price is 447,000 not much different from Lenard it's also saying business pick up even though everything says that shouldn't be happening if there's a housing market crash on the horizon new orders are up 29% in the latest quarter just as cancellation rates are falling dropping to 11% from 14% a year ago one thing that sets NVR apart is that it typically doesn't buy land to build on until it's ready to build that's very smart so they're not stuck with spec homes like Lenard the asset light model makes it much more flexible to changing market conditions and keeps its capital requirements lower than the comp competition that's actually very very good thus where Lenard's trailing return on Equity runs around 18% NRV stands at a robust 45% it's likely this is one of the reason Buffett likes this Builder that Builder sounds way better shaped than lonard now take a look at Dr Horton dear Horton is both the biggest home builder in the US and one Buffett spent the most on he bought almost six holy smokes he bought almost 6 million shares at around $121 a share for a total value of a approximately 695 million in comparison we don't even need to pay attention to the other new home builders because he's got so much more money in Dr horn that's actually that's surprising to me to be honest with you Nar says there are around 1.1 million unsold existing homes or just 3.3 months worth of inventory it's considered a shortage when there is less than six months supply of existing home sales it's why Buffett was attracted to this sector if existing home owners aren't putting their homes on the market the new home builders will benefit it explains Rising new orders and deliveries with falling cancellation rates until unfortunately you guys right now so shortly after this article everything completely started melting down literally in almost every single Market it's completely dead right now but the article doesn't agree with that ultimately it looks like Buffett didn't read the market wrong at all in fact he read it just right it sounds to me like an accountant wrote this article it's a little bit delusional in my opinion let's keep going because these are otherwise strong financially secure businesses that will survive even if the housing market crash happens you all comment below let me know if you think that Warren Buffett made the right decision a lot of people are still hung up on supply and demand and only looking at supply and demand now personally you guys already know I've traveled around the country I've flown into States to walk some of these new communities and I believe that actually new homes are going to be a primary Catalyst at prices continuing to crash and go down and the reason I think that is is home prices are just too expensive the ridiculous buying incentives that they're currently offering right now are no longer working essentially what needs to happen is is we need prices to continue to go down because Normal consumers we just can't afford these prices so unless there's some type of government incentive to give to home builders to continue to build I personally think from the outside looking in that he did make the wrong decision especially with Dr Horton considering he spent roughly $700 million and more than likely he's probably down what 10 million dollars right now so I don't understand why the article is not acknowledging that he's actually lost money since that and also don't forget this we're now heading into fall and winter dark months interest rates are near 8% home buying demand is is absolutely crushed Supply is shooting up the consumer starting to unravel chapter 11 bankruptcy shooting up Chapter 13 Bankruptcy shooting up corporations melting down commercial real estate long-term rental market meltdown St bans I mean how much more headwinds do we need for people to start reading the writing on the wall but maybe I'm wrong and that's why I really look forward to what you have to say in the comments and other than that guys do not forget join my morning lives usually they start at 8:45 a.m.
central Time Monday through Friday and if you're out there investing in real estate you already know I wish you luck and I hope you win
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