My Mortgage Blog

"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1." Warren Buffett

Does Warren Buffett like real estate? Does that matter?

You bet!

Here are some of the reasons that it matters. There are services to which you can subscribe that follow every purchase and sale, every trade, made by Buffett. He is a genuine market-mover with a great track record and thousands of followers. His purchase of Prudential Real Estate, therefore, should make us all sit up, take notice, and take real estate even more seriously as a power sector in our current economy.

And one of the things that really catch my attention is that buying a big company is very different from buying a large block of that company's stock. Buffett and Co. (Berkshire Hathaway, that is) plan to be right there, planning every move of the real estate conglomerate it now owns, not just sitting and watching.

Two things come immediately to mind.

First, this is not a quick-turnover purchase. One suspect Buffett and Co. thinks the purchase of Prudential will reap strong profits for years to come. Their thoughts should guide us to look at real estate as potentially one of the greatest profit centers of the next decade, therefore. We're not just gambling or messing around here. As he himself has often said, Buffett doesn't like to lose money.

Second, Buffett and Co. will bring, at the least, subtle changes to the way real estate is practiced. As with the trend for large investment conglomerates buying up large numbers of single-family residences, what we see here is a huge company diving into the business, ready to make changes, to streamline, to reap the rewards of a strong real estate industry.

So where do we want to be in the midst of this? It seems pretty obvious that siding with Buffett is a good bet. By this I don't necessarily mean we should all go to work for Prudential Real Estate. No, but we should all watch every move the company makes very, very closely.

And watch the seemingly unrelated news. Notice, for example, this remarkable forecast from Fannie Mae: "Citing data from CoreLogic, Orawin Velz, Fannie Mae's director of economic and strategic research, notes that 1.7 million properties moved from negative to positive equity last year. Provided the home price gains seen so far this year continue, Velz anticipates another 1.8 million properties will rise out of their underwater positions by the end of 2013."

Why is this happening? Because so many of the dire predictions from analysts over the past several years just didn't happen. Lenders and regulators have eased back on using foreclosures as the quick and easy resolution to financing problems, and are, in many cases, actively seeking work-outs that benefit everyone. At the same time, rapidly rising selling prices of homes unexpected among most analysts are increasing many homeowners' equity position in their homes and making foreclosures unnecessary and sales possible.

And Friday's Wall Street Journal notes that even the size of the federal deficit in our nation is declining for somewhat related reasons. Despite the many analysts who predicted that the federal deficit-like mortgage foreclosures would derail an apparent recovery in real estate and the nation, "rising government revenue and bailout paybacks are shrinking the deficit faster than expected" [Damian Paletta, The Wall Street Journal].

If the economy and real estate market are improving at a faster-than-expected clip, Buffett is in on it, investing in our future. Perhaps we should, each in our own way, join him.