2017 was a relatively quiet year for the 87-years young CEO of Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial). Blockbuster deals were hard to come by as Berkshire failed in attempts to profit Unilver (UN, Financial), Oncor Electric Delivery Co. and Kraft Heinz Co. (KHC, Financial). Berkshire Hathaway did manage to purchase a stake in Pilot Travel Centers LLC, owner of the Pilot Flying J truck stop chain. The 38.6% acquired in Pilot Travel Centers, based out of Knoxville, Tennessee, was the highlight in an otherwise quiet year, made more frustrating to the guru by the low interest rates.
However, the “Oracle of Omaha” through his HomeServices of America Inc. has rather stealthily become the second-largest residential brokerage owner in the U.S. The purchase of HomeServices of America Inc. in 2000 was a company that the guru is on record saying that he “barely noticed” when his Berkshire Hathaway Inc. purchased as a subsidiary of an electric company. But now, following the purchase of one of its closest competitirs, Long & Foster Cos., sights are being set on overtaking the No. 1 residential brokerage in the U.S., Realogy Holdings Corp.’s NRT LLC unit.
The purchase of Long & Foster Cos. boosted HomeServices’ volume by over 80,000 “sides” (either buyer or seller side) last year, making a total of 328,355 sides, for HomeServices in 2017, a 34% increase from 2016.
The U.S. Housing Market
So has Warren Buffett (Trades, Portfolio) struck gold again in the U.S. housing market or is it another Dexter Shoe Co., bought for $433 million in 1993 but ending up costing investors over $1.5 billion and regarded as Buffett’s biggest mistakes? Well, the U.S. housing market at first glance doesn’t look so hot right now. This month saw new home sales in the U.S. decline for the third consecutive month, whilst the housing supply has reached its highest level since 2009. According to Redfin's most recent Housing Demand Index, homebuyer demand declined 14.1% in February this year, the lowest level of homebuyer demand for 11% and the largest ever monthly fall since Redfin records began in January 2013.
Despite the weak housing stats, the picture for Buffett and HomeServices is actually rosier than it appears. Housing supply in the world’s largest economy has declined for a staggering 33 consecutive months. There were 13.6% fewer homes for sale in February than in the same time last year. Low interest rates, record low unemployment and high general consumer confidence all make for a strong housing market, but put simply there isn’t enough supply to match demand.
However, the signs are that might change. Single-family dwellings under construction soared in February to the highest level since June 2008 while completions reached a decade-long high. Plumbers, decorators and construction services are also experiencing booming times, with many tradespeople across the U.S. reporting there aren’t enough hours in the day to meet client demands, as the activities of housing "flippers" keep the buying and selling markets buoyed.
With strong momentum in the U.S economy, the housing market in general looks to be in a good state. The sharp increase in construction coupled with unabating demand looks set to be a driving factor in helping the U.S. hit 3% GDP growth in 2018, and Buffett’s HomeServices to become the largest housing broker in the U.S.
Disclosure: The writer has no stakes in the listed equities
