Billionaire Warren Buffett said the U.S.
will recover from the residential real estate slump by 2011 as demand for
houses catches up with the supply that accumulated during the bubble.
“Within a year or so,
residential housing problems should largely be behind us,” Buffett wrote
Saturday in his annual letter to the shareholders of his Berkshire Hathaway. “Prices
will remain far below ‘bubble’ levels, of course, but for every seller or
lender hurt by this there will be a buyer who benefits. Indeed, many families
that couldn’t afford to buy an appropriate home a few years ago now find it
well within their means.”
Record foreclosures flooded a U.S.
real estate market already glutted with unsold property, causing housing starts
“People thought it was good
news a few years back when housing starts — the supply side of the picture —
were running about 2 million annually,” wrote Buffett, 79, chairman and
CEO of Omaha-based Berkshire. “But household formations — the demand side
— only amounted to about 1.2 million.”
Buffett built Berkshire into a $198
billion company through takeovers and investments in companies he believes have
lasting competitive advantages and superior management.
Berkshire, which has a real estate
brokerage, a business that constructs prefabricated houses and units making
products used in home building, has suffered in the downturn. Profit at carpet
maker Shaw Industries fell 30%
last year to $144 million.
He’s very deeply invested in this,
said Tom Russo, partner at Gardner Russo & Gardner, which holds Berkshire
stock. Across his industrial companies, he’s massively poised to gain from a
housing recovery, Russo said.
Buffett wrote that his company
should have bought more corporate and municipal bonds last year because they were
cheap compared with U.S. Treasuries. When it’s raining gold, reach for a
bucket, not a thimble, he said.
Buffett has used past letters to
discuss plans for his successor, praise Berkshire managers and confess his
failings. Last year he said the U.S. economy was in shambles after reckless
Buffett said this year that the
CEOs and boards of companies that failed during the credit crisis shouldn’t be
able to pass blame to those below them. Boards should insist on CEOs taking
responsibility for risk, he said.
Shareholders weren’t the ones who
botched the operations of some of the largest financial institutions, Buffett
said, yet they have borne the burden, with 90% or more of their holdings wiped
out in cases of failure.
Buffett agreed to his largest deal
last year when he arranged the $27 billion takeover of railroad Burlington
Northern Santa Fe. Berkshire completed the acquisition, which Buffett described
as an all-in wager on the U.S. economy, on Feb. 12.
Shares of Berkshire traded at about
$15 when Buffett took control in 1965. The class A stock closed yesterday at
$119,800, its highest since October 2008. Buffett added class B shares in 1996,
and agreed to split them this year to help pay Burlington Northern