Episode summary
Why Berkshire is Buying Homebuilders Into the Housing Slump
Summary
US home buyers are on what the host calls a buyers’ strike: in July there were an estimated 51.3% more sellers than buyers, or 151 sellers for every 100 buyers, while homebuyers fell to 966,000, the lowest level on record. He argues that the post-COVID jump in housing prices, helped by stimulus checks, pushed the average U.S. home from about $200,000 to $400,000 and left prices above what local incomes can support.
The host says that when house prices stop approximating income, banks lend less and prices drift down, which he says is now happening across 80% of major U.S. metro areas, with Miami and South Florida singled out as especially weak. He frames the current slump as a classic buyers’ market, even if prices have not fallen far enough yet.
Against that backdrop, he highlights Berkshire Hathaway as an example of counter-cyclical investing. He says Berkshire is buying into homebuilders and related names, including Taylor Morrison Homes, Lennar, and D.R. Horton, while the Gates Trust bought Home Depot. His argument is that smart money buys strong businesses during distress, not garbage stocks, and that long-term returns come from buying quality companies when they look terrible.
Key takeaways
- The host says July had 51.3% more home sellers than buyers, or 151 sellers for every 100 buyers, the second-highest level on record.
- The host says homebuyers fell to 966,000, the lowest level recorded, as housing affordability snapped back after COVID-era price gains.
- The host argues housing prices must track neighborhood incomes, and when they do not, bank lending slows and prices drift lower.
- The host points to Berkshire Hathaway buying Taylor Morrison Homes, adding to Lennar, and buying D.R. Horton as a counter-cyclical signal.
- The host says the right bargain-hunting setup is strong companies with good management and healthy balance sheets, not inconsistent businesses.
Notable quotes
“if you don't buy stocks when they look absolutely terrible, you will never buy a bargain”
“There was an estimated 51.3% more home sellers than buyers in July, which means that for every 100 buyers out there, there are 151 sellers, okay”
“the number of home buyers fell 2.5% month-over-month to 966,000, which is the lowest record of home buyers on record”
“housing prices always have to approximate someone's income, the income in the neighborhood”
“Smart money buys the wreckage before the recovery”
How the episode opens
Good morning. This is doing Giovanni with Behind the Markets. Happy Tuesday.
Today is Tuesday, August 25th, and you know, I've been thinking a lot about an expression I learned when I worked on Wall Street. The expression is this, if you don't buy stocks when they look absolutely terrible, you will never buy a bargain. And what got me really thinking about that is the housing market.
See, US home buyers are on a buyers strike. And these numbers are really interesting I wanted to share with you here. There was an estimated 51.3% more home sellers than buyers in July, which means that for every 100 buyers out there, there are 151 sellers, okay?
So, you have a lot more selling out there than buying. That's the second highest level on record. And the percentage for context has doubled in the past 2 years.
Basically, you have a lot of sellers pushing down the price of homes, really leaning into that. And this comes as the number of home buyers fell 2.5% month-over-month to 966,000, which is the lowest record of home buyers on record. Since they started keeping records, we have under a million people in this country looking to buy homes.
That's the lowest on record, and it really speaks to the dramatic increase that we saw in housing prices after COVID. Remember, the Trump administration and the Biden administration sent out checks, just checks to people during COVID, okay? Everybody was happy getting that check, but it caused inflation.
People started buying houses. Now, that really sent, doubled basically, the price of the average house in America from about 200 to 400,000 dollars. So, that is now starting to adjust back down.
Remember something, housing prices always have to approximate someone's income, the income in the neighborhood.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- housing slump
- berkshire investments
- homebuilder stocks
- home prices and affordability
- countercyclical investing
Companies and tickers mentioned
- BRK-B
- BRK-A
- LEN
- DHI
- HD
- Berkshire Hathaway
- Taylor Morrison Homes
- Lennar
- D.R. Horton
- Home Depot
- Gates Trust
Watch the episode
Watch “Why Berkshire is Buying Homebuilders Into the Housing Slump” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from Behind The Markets Podcast
-
Nvidia CEO Out: 4 Reasons I’m Not Panicking About Nvidia -
The Mag 7 Sell-Off: My 3 Secrets to Picking Stocks -
Morgan Stanley’s AI Winners List Is Full of Bank Stocks -
Anthropic IPO: Why I’m Not Rushing to Buy at $1 Trillion -
Chip Stocks Sell-Off: Why the AI Build-Out Just Went From 3 to 5 Years -
Midterm Election Results: The Stock Market’s Winners and Losers
Behind The Markets Podcast, this episode and its artwork belong to their owners. Octagon is not affiliated with the show; this page is an independent summary.
