Warren Buffett Bets Big on Homebuilders

A shortage in existing home inventory is elevating home builders across the country, and the Oracle of Omaha appears to have taken notice.

Warren Buffett’s Berkshire Hathaway disclosed $814 million in investments across three home builders this week, the Financial Times reported. The move from the world’s most famous investor reflects how builders are capitalizing on this moment of limited supply, even as higher mortgage rates have cast a chill on home sales.

Buffett’s biggest focus was on D.R. Horton. Berkshire purchased six million shares in the company, worth roughly $726 million at the end of the second quarter. The investment made Berkshire one of D.R. Horton’s 10 largest shareholders, as it holds 1.8 percent of its stock.

Berkshire also purchased more than 152,000 shares in Lennar and 11,000 shares in NVR. The investments came at a time when Buffett has pulled back from the stock market, selling billions of dollars’ worth of stock while purchasing relatively little.

The investments also came as Berkshire’s own subsidiaries tied to the housing industry endured challenges. Those businesses, which span flooring, paint, insulation, roofing and modular homes, suffered a 12 percent revenue drop in the first half of the year.

Buffett’s firm has recently fixed its focus around high-yielding U.S. Treasury bills. The company is largely in a wait-and-see mode, however, approaching a record with $147 billion in cash.

The stock index tracking homebuilders has easily outpaced the broader S&P 500 this year. While the latter has risen by 16.5 percent this year, the S&P Homebuilders Select Industry stock index is up a startling 36.4 percent.

D.R. Horton stock is up 38.8 percent this year, one of the best performers in the sector. Lennar is up 36.7 percent, while NVR is up 35.2 percent.

It’s been a roller coaster for builders since the onset of the pandemic. They accelerated construction to keep up with demand after Covid, only to be tied down by supply chain issues and labor shortages. While they tried to keep up with consumer’s thirst for homebuying, rising interest rates suddenly sent mortgage rates soaring, saddling builders with more homes than they could readily unload.

— Holden Walter-Warner