What Warren Buffett Just Told Me About Real Estate Prices

Q: Gerald, I know you go to the Berkshire Hathaway Shareholder Meeting every year. What insights did you get from Warren Buffett about the real estate market? Elvin, Teaneck, NJ

A: Yes, Elvin, I do go to the Berkshire Hathaway Annual Shareholder Meeting every year, often called The Woodstock Of Capitalism to hear Warren Buffett & Charlie  Munger, the 2 smartest business minds on Planet Earth speak extemporaneously for 5 hours.  In fact I just returned from the 2016 Berkshire Shareholder Meeting and as usual, Warren & Charlie did not disappoint this year-their wit and insight were well worth the trip.

To answer your question, Warren Buffett was asked about a comment he made back at the 2012 shareholder meeting as well as whether he thought recent real estate market gains were indications of another real estate bubble?  The comment he made back in 2012 was that if he could he’d buy 100,000 single family homes–At the 2016 meeting, Warren said that now is a good time to buy a house, though not as good as it was four years ago and he thinks the chances of housing prices collapsing are very low.  Specifically, he said, “I don’t see a nationwide bubble in real estate right now at all,”

There are many people in many local real estate markets including mine in northern new jersey who have been complaining about higher real estate prices and more competition for property–here’s my take on that.  The higher real estate prices are primarily being caused by lower housing inventory–when the supply of housing is low, demand often ends up exceeding supply which leads to higher prices.  The reason for the low inventory is due in large measure to the fact that there still are many homeowners who have still have no equity or have negative equity in their homes.  Although home prices have gone up recently, in most places, prices have not reached the real estate market highs of 2005 & 2006 which makes it difficult for people who bought at the market height to sell unless they are behind on their mortgage and can get someone to negotiate a short sale for them.  For this reason, I think that some of these home price increases have been artificially inflated by lower property inventory.  As always, it’s important that you track real estate prices on a regular basis in your local real estate market so you are ready to adapt to market changes.

Thanks for your question, Elvin, good luck.

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