Warren Buffett Is Betting Big On Homebuilders

Berkshire Hathaway invests a combined $814M across D.R. Horton, Lennar, and NVR

The current scarcity of available homes has catapulted home builders to prominence nationwide, and it seems Warren Buffett, often dubbed the “Oracle of Omaha,” is paying attention.

This week, the Financial Times revealed that Buffett’s Berkshire Hathaway has invested a staggering $814 million across three prominent home builders. Such an investment by the globally renowned financier signifies the advantage builders are seizing during this period of limited house availability, despite the dampening effect of increased mortgage rates on home purchases.

D.R. Horton caught the majority of Buffett’s attention, with Berkshire acquiring six million of its shares, which had an estimated value of around $726 million by the close of Q2. This substantial investment places Berkshire among the top 10 shareholders of D.R. Horton, owning approximately 1.8% of its stock.

In addition, Berkshire snapped up over 152,000 shares in Lennar and a smaller portion of 11,000 shares in NVR. This buying spree is noteworthy, especially at a time when Buffett has been somewhat reserved in his stock market activities, selling stock worth billions but buying relatively few.

This investment surge is all the more intriguing when one considers the challenges faced by Berkshire’s own housing-related subsidiaries. Businesses under its umbrella, ranging from flooring and paint to insulation, roofing, and prefab homes, experienced a revenue dip of 12% in the year’s first half.

Recently, the spotlight at Buffett’s enterprise has been on lucrative U.S. Treasury bills. The conglomerate currently sits on a whopping $147 billion in cash, seemingly adopting a more cautious stance.

In terms of performance, the index monitoring homebuilders have notably surpassed the broader S&P 500 this year. While the S&P 500 has seen a 16.5% surge, the S&P Homebuilders Select Industry stock index skyrocketed by an impressive 36.4%. Among these, D.R. Horton’s stock rose by 38.8%, emerging as a top-tier player. Lennar and NVR also recorded commendable upticks at 36.7% and 35.2% respectively.

However, the journey hasn’t been smooth for home builders since the pandemic started. Eager to meet the post-Covid demand, they ramped up construction efforts but were soon bogged down by supply chain disruptions and workforce deficits. Even as they strived to match the surging home-buying appetite, an unexpected hike in interest rates pushed mortgage rates sky-high, leaving builders with more constructed homes than they could conveniently offload.