Warren
Buffett’s
Berkshire Hathaway
Inc. (BRK/A) is extending its bet on the U.S. housing market by forming a
venture with
Brookfield Asset
Management Inc. (BAM/A) as low interest rates, inventory and prices spur a
real-estate rebound.
Berkshire’s HomeServices of America Inc. unit will be the majority owner of
the venture to manage a U.S. residential real- estate affiliate network,
according to a statement on the new company’s
website. The firms plan to offer a new franchise
brand, Berkshire Hathaway Home Services, starting next year. Brookfield’s
network has operated under the Prudential Real Estate and Real Living Real
Estate brands.
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HomeServices Chief Executive Officer Ronald Peltier said, “When you add the pieces up together with low interest rates, we see a housing market that will continue to improve.”
Photographer: Kari Goodnough/Bloomberg |
Berkshire’s managers have been positioning the firm to benefit as the U.S.
home market recovers from its worst slump in seven decades. The Omaha,
Nebraska-based company has bought a brickmaker, won the loan portfolio of
bankrupt mortgage lender Residential Capital LLC at auction and built its
HomeServices unit by agreeing to acquire real-estate brokerages in states
including Oregon and Connecticut.
“We have significant inventory shortage across the country” and prices have
fallen, HomeServices Chief Executive Officer
Ron Peltier
said in a phone interview. “When you add the pieces up together with low
interest rates, we see a housing market that will continue to improve.”
Berkshire Class A shares declined less than 1 percent in New York trading on
Oct. 26 to $129,725 and have gained 13 percent this year. Brookfield, based in
Toronto, advanced 1.9 percent yesterday to C$34.90 and has surged
24 percent
since Dec. 31.
Buffett’s Outlook
Buffett, 82, said in July that the U.S. home market was beginning to improve.
Berkshire’s billionaire chairman and CEO tracks economic activity, in part, by
studying the results of the company’s more than 70 operating businesses
including ones that build manufactured homes, make paint and sell insulation.
“It was just a question of getting households in balance with” the supply of
homes, Buffett told Bloomberg Television’s
Betty Liu in a
July 13 interview. “That happens in different paces in different parts of the
country, but you have seen a much better balance developing here in recent
months. And that’s why you’re seeing some pickup in prices in places.”
Housing prices rose 2 percent in August from a year earlier, the biggest gain
since July 2010, according the S&P/Case-Shiller index of property values in
20 U.S. cities. The number of homes for sale in the U.S. dropped 18 percent last
month from a year earlier, according the National Association of Realtor's
website.
Borrowing Costs
Federal Reserve policy makers have said they will keep borrowing costs near
zero to help stimulate the economy. That’s led to near record-low
interest
rates on home loans. The average rate on a 30-year fixed mortgage was 3.63
percent, the
Mortgage Bankers Association said last week.
The new company, HSF Affiliates LLC, will have a combined network of more
than 53,000 agents operating in about 1,700 U.S. locations and who generated $72
billion in sales last year. The network will give HomeServices exposure to
markets such as New York,
Boston and Northern California, Peltier said.
Hurricane Sandy, which made landfall in
New Jersey this
week, may decrease inventory in the Northeast as homeowners assess damage,
Peltier said. The storm battered homes in coastal states that account for about
one out of every five U.S. real estate sales.
“Short-term, it makes properties harder to sell when parts of neighborhoods
have been devastated,” he said.
When deciding whether or not to buy a home, one consideration will be the cost of alternative housing options. Renting an apartment is one such alternative. Where are rental prices heading over the next few years?
