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If you’ve been following real estate news, you know that new construction has faced many challenges since the start of the COVID-19 pandemic. From soaring prices for construction materials to labor shortages and, more recently, high mortgage interest rates, the home construction industry is facing more than its fair share of challenges. In fact, homebuilder confidence fell for the third consecutive month in 2023.
But one of the world’s most respected and successful investors invested in three major construction companies last year. Berkshire Hathaway, led by Warren Buffett, announced that it has invested $814 million in DR Horton, Lennar, and NVR. And that goes against Berkshire’s overall wait-and-see approach.
When Buffett invests, it’s worth paying attention to what he does. Small investors have long imitated Buffett’s actions, and his decisions have a huge impact on the stock market. DR Horton shares rose 2.8% and Lennar shares rose 2% following Buffett’s disclosure of construction investments.
Why investing in home construction in 2024 is a good idea
If you’re a real estate investor, what should you make of this move as Buffett’s vote of confidence seems to go against the overall environment of low confidence in the sector? What we don’t know What does Buffett know? Should investors consider copying his strategy?
At first glance, there’s nothing particularly controversial about Berkshire’s investment strategy. All three construction companies selected for investment have a long history of reliable growth in this sector. They are not high-risk investments.
But the fact that Buffett singled out the construction industry among other potential investment opportunities stands out. In some ways, Buffett’s decision is an insightful prediction of where the real estate market is headed.
The single most persistent factor shaping real estate over the past three years has been the extremely limited housing inventory across the United States. This limited inventory continues to support the housing market even after it becomes largely unaffordable for buyers. One simple reason why home prices continue to rise despite large interest rate hikes is one. That means there aren’t enough homes to go around.
We are now at a critical threshold. In 2024, we will see what the long-term trend in mortgage rates will be. Rates may be reduced somewhat or remain at current levels for some time.
Regardless of which scenario plays out, buyers who hold off on taking the plunge now are likely to eventually take the plunge. This is because the need for housing is greater than the desire to wait for a better time to buy.
And this is where the construction industry comes into play. Realistically, only increased construction of new homes can meet current levels of demand. Even if existing housing inventory improves, it will not be enough to close the supply-demand gap.
Many existing homeowners simply don’t want to sell because it means giving up low mortgage rates before 2022. Buyers are increasingly purchasing new homes, and this behavior will increase in the coming years.of National Association of RealtorsFor example, we expect new home sales to increase by 13.9% in 2024, up from 12.3% in 2023.
This is like building mutual trust. Once buyers and investor buyers buy, the construction sector will ramp up construction, no matter what the interest rates are. Because doing so will give you more evidence that it will be profitable. And if new home construction gets off the ground, buyers (and renters) will have more options for affordable housing, which is exactly what they need.
So how can real estate investors capitalize on this trend?
This must be the series of events that Mr. Buffett anticipates in his investment strategy. Real estate investors should definitely keep an eye on the construction sector, as his long-term thinking has paid off time and time again in the past.
This doesn’t mean you need to buy stock in the same companies that Buffett owns. Investing in a small but promising homebuilding company with a proper plan could yield better returns over time. Look for a company that carefully considers where and how much land to buy and how quickly to build. You want to see reliable completion rates in a hot housing market (popular with buyers and renters due to affordability).
Park Street Homes is one such company. We offer a unique opportunity to invest in the future of urban housing and new home construction for just $500. With Park Street Homes, you can invest directly in fast-growing industries and diversify your portfolio. Slowly watch your wealth grow while supporting sustainable community growth through new construction.
It’s important to remember that this type of investment is definitely a long-term game. But if you want to diversify your activities, portfolioNew construction is quite affordable.
This article is sponsored by Park Street Homes
Park Street Homes offers a unique opportunity to invest in the future of urban housing and new home construction for as little as $500. With Park Street Homes, you can invest directly in a fast-growing industry and diversify your portfolio with real estate. Slowly watch your wealth grow while supporting sustainable community growth through new construction.
Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.
