(Originally Published 04/03/12.)
“Be greedy when others are fearful. Be fearful when others are greedy.” – Warren Buffett
Warren Buffett is notably one of the richest men in the world and arguably The most successful investor in modern times. He’s a contrarian investor who looks to buy investments when they are out-of-favor, an investor who’s admitted his favorite holding period is “forever.” When Warren Buffett speaks, people listen and take heed.
Warren Buffett was interviewed February 27, 2012 by Becky Quick, on CNBC’s Squawk Box. Buffett said that single-family homes are currently an attractive investment, and an even better choice than stocks if purchased using low interest rates and held for a long time.
“I would say that single-family homes are cheap now…If I had a way of buying a couple of hundred thousand single-family homes and had a way of managing them [houses, unlike apartment buildings, are spread out over different neighborhoods and are difficult to manage on a grand scale]…I would load up on them and…take mortgages at very low rates. But if anybody is thinking about buying a home – five years ago they couldn’t buy them fast enough because (everyone) thought they were going to go up, and now they don’t buy because they think they’re going to go down. And interest (rates) are far lower now. It’s a way, in effect, to short the dollar, because you can take a 30 year mortgage and if it turns out your rate is too high, you can refinance lower. If your rate is too low, the other guy [the bank] is stuck with it for 30 years. So it’s a very attractive asset class right now.” (Bracketed comments added by author.)
“But values are still falling!” scream all the Chicken Littles. Well, in some neighborhoods, that’s true. But in many others, values have stabilized and in some, have even risen! The point is, real estate, like any investment, should be a long-term hold. If you’re buying real estate with the intent to sell quickly, you’re not investing; you’re gambling.
According to Buffett:
“Today, there are more households being created than houses. If that continues – and it will continue – eventually it gets in balance…When it gets in balance, we will need more than a million residential housing units annually…(It) got way out of balance five years ago and it’s taken us a long time to work it off. But it does get worked off, and households are now being formed…We have four million people, roughly, hitting each age cohort every year, and they form households and they want to be in houses.”
In other words, as children move out, get married, and have children of their own, the demand for housing will continue to grow. This will bring supply and demand back into alignment and necessitate more housing units to meet the increasing demand.
So as a long-term investment and lifestyle strategy, homeownership is still the key for most people. As J. Paul Getty once said, “Buy when everyone else is selling and hold until everyone else is buying. That’s not just a catchy slogan. It’s the very essence of successful investing.”
Or as Mark Twain said, “Buy land. They’ve stopped making it.”
Warren Goldberg is a Certified Mortgage Planning Specialist and a published author. His interviews include Blog-Talk Radio, Newsday, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.