The Real Deal Miami

Housing recovery could be a ways off, despite Buffett investments, hedge-funders say

August 16, 2012 02:15PM

Warren Buffett

Opining experts seem to agree that the housing market has bottomed and that consumers should probably get back to buying, especially since they can access historically low interest rates. Billionaires and big investors, like Warren Buffett, have heard this advice and are now buying up businesses with real estate interests, according to an article by Leonid Levit and Derek Cheung of Honne Capital, a New York-based hedge fund, published in Forbes. But is it too soon to cry recovery?

Buffett and his ilk are increasing their stakes in companies such as Wells Fargo — the largest originator and servicer of mortgages in the country — and US Bancorp, apparently banking on a strong housing recovery. However, according to Levit and Cheung, a combination of weak consumer confidence, a huge shadow inventory that will eventually hit the market and the European debt crisis means that investors should remain wary of “the rebound.”

Domestic consumers simply do not have the kind of job security necessary to enter into a long-term mortgage and the shadow inventory could push the supply past the demand in the near future. Foreign buyers have kept the ultra-prime market afloat but regular Americans are still turning to rentals in large numbers. “[Buffett’s] investment in Wells Fargo and US Bancorp is a play on foreigners fleeing to America for safety. Regular homebuyers beware, watch local prices carefully,” Levit and Cheung write. “If you see properties around you being bought by foreigners it is time to finally make the leap because the housing market will be uphill from there.” [Forbes] – Christopher Cameron