In total, Berkshire bought 5,969,714 shares of DR Horton, 152,572 shares of Lennar and 11,112 shares of NVR. The shares are worth more than $800 million, of which more than $700 million belongs to DR Horton.
While Berkshire Hathaway CEO Warren Buffett has not publicly stated the motivation behind the investment, the stock purchases did coincide with a sharp rise in U.S. homebuilder stocks.
This year, the homebuilder space has performed well, with DR Horton and Lennar up 38.0% and 36.2% year-to-date, respectively. NVR followed with a 33.5% increase this year. By comparison, the S&P 500 has gained 16.3% this year.
The driving force behind the increase can be attributed to a rebound in new home sales in 2023 after falling sharply during last year’s housing downturn triggered by a mortgage rate shock.
This new architectural improvement has translated into new home sales 23.8% year-on-year growth in June 2023. Still, new home sales are 32.2% below their cyclical peak in August 2020, at the height of the housing boom during the pandemic.
A key reason for the rebound in new home sales is the innovative strategies homebuilders are implementing to improve affordability and attract buyers. Unlike the existing home market, where inventory remains tight and prices remain sticky, homebuilders have lowered net effective home prices. These affordability adjustments include offering mortgage rate buybacks, refunds at closing and property price reductions, among other things.
“To address affordability issues in the market, we have introduced additional incentives into the market and adjusted base pricing on homes where necessary. Our most successful recent incentives have been for rate purchases. We typically offer below-market The 30-year rate, Dr. Horton CEO David Alder told Fortune earlier this summer.
In addition, the homebuilding industry also benefits from the scarcity of existing inventory in the market. This scarcity, combined with the aforementioned affordability strategies, further enhances the appeal of new build homes. The resulting competition for a limited number of existing homes has prompted potential buyers to consider new home options, boosting homebuilders’ sales figures.
And the housing shortage is likely to persist for years.
In fact, Deutsche Bank recently released a paper concluding that the U.S. housing market was only going through a mid-term crisis last year and that a housing shortage will keep builders busy for years to come.
“It’s hard to pinpoint exactly how underbuilt the country is, but I firmly believe we will remain in a housing market that is extremely undersupplied, both new and existing, for years to come due to the industry’s development and construction capacity constraints, Dr Houghton chief executive David Alder told wealth Come back in June.
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