Warren Buffett's View on Single Family Home Investment

On Monday, February 27, 2012 Warren Buffett appeared live on CNBC for his annual “Ask Warren” marathon. During this interview he mentioned that one of the best investment opportunities around right now in the United States are Single Family Homes!

BUFFETT: I would say that single-family homes are cheap now, too.

BECKY: You would?

BUFFETT: Yeah, single-family homes— but if I had a way of buying a couple hundred thousand single-family homes and had a way of managing— the management is enormous— is really the problem because they're one by one. They're not like apartment houses. So— but I would load up on them and I would take mortgages out at very, very low rates. But if anybody is thinking about buying a home— five years ago they couldn't buy them fast enough because they thought they were going to go up, and now they don't buy them because they think they're going to go down. And interest rates are far lower. It's a way, in effect, to short the dollar because you can— you can take a 30-year mortgage and if it turns out your interest rate is too high, next week you refinance lower. And if it turns out it's too low, the other guy's stuck with it for 30 years. So it's a very attractive asset class now.

BECKY: If you are a young individual investor at home and you have your choice between buying your first home or investing in stocks, where would you tell someone is the better bet?

BUFFETT: Well, if I thought I was going to live— if I knew where I was going to want to live the next five or 10 years I would— I would buy a home and I'd finance it with a 30-year mortgage, and it's a terrific deal. And if I— literally, if I was an investor that was a handy type, which I'm not, and I could buy a couple of them at distressed prices and find renters, I think that's— and again take a 30-year mortgage, it's a leveraged way of owning a very cheap asset now and I think that's probably as an attractive an investment as you can make now.

After Two-Year Lull, Delinquencies Rise for Second Straight Quarter

The national mortgage delinquency rate rose during the fourth quarter of 2011, TransUnion reported Tuesday, marking only the second time since the end of 2009 the Chicago-based credit bureau has recorded an increase in its quarterly assessment of past due mortgage payments.

The first was during the third quarter of 2011, with the succession signaling what could be a troubling trend in the making.

The rate increased from 5.88 percent at the end of the third quarter to 6.01 percent as of the end of the fourth.

The highest mortgage delinquency rates during the fourth quarter were found in Florida (14.27%), Nevada (12.08%), New Jersey (8.32%), and Arizona (7.50%).
States with the lowest mortgage delinquency rates included North Dakota (1.50%), South Dakota (2.45%), Nebraska (2.57%), and Alaska (2.77%).

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You can read the whole article here.

Would you like to find out why this can be right?

Foreclosures & REO RAISE House Prices, Economic Activity & Taxes.

a)  Foreclosures and distressed sales INCREASE neighborhood house values and create a positive economic benefit when investors buy low, rehab and resell higher. Moreover, rehabs create jobs and the resale makes for TWO existing home sales transactions, commissions etc in a short period of time. Lastly, they make for a substantial increase in property tax revenue on rehab and final resale.

b)  Foreclosures and distresses sales BENEFIT the neighborhood and local area economy when they are sold to an owner-occupant who purchased in the open market and then rehabs, maintains and occupies.

Is strip mall or retail shopping center a good investment?

If you are interested in retail commercial properties ( shopping centers, malls, ..... ) and think they are cheap now, you may want to think twice. In short, the macro trend does not support the future of the retail commercial properties.

This article below from The New York Times tells well.

How About Gardening or Golfing at the Mall?

Some highlights: 

* While malls have faced problems in the past, the Internet is now pulling even more sales away from them.

* Near-record vacancy rates at malls of all kinds, both the big enclosed ones and the sprawling strips.

* Most cities, looking at shrinking budgets, cannot afford to subsidize or knock down ailing malls.

* Schools, medical clinics, call centers, government offices and even churches are now standard tenants in malls.

* The vacancy rate at shopping centers and strip malls was 11 percent in the last quarter of 2011, the highest level since 1991, according to the research firm Reis.

Foreclosures at the high end increase

by Pete Carey on 02/05/2012 in Mercury News  ( Read the whole article here. )

Although starter homes ($400K to $600K) has bottomed out since 2010 and even start to recover now, be very careful on the high end properties since they may not have fully corrected yet.
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The housing crisis, which first devastated borrowers who purchased lower-cost homes with subprime loans, has caught up with people whose wealth helped them hang onto their houses longer.

Throughout affluent communities in the Bay Area, million-dollar-and-up homes are increasingly being lost to foreclosure, or sold as a last resort for far less than their mortgages.
More than 1,500 Bay Area homes with mortgages of $1 million or more were scheduled for auction last year, more than double the number in 2008, according to ForeclosureRadar, a foreclosure tracking service.

Santa Clara County had more than 400 homes valued at $1 million or more scheduled for auction in 2011, the most of six Bay Area counties.


Contra Costa County, which led the region in lower-end foreclosures, is now one of the harder hit on the high end, with about 300 homes valued at $1 million or more scheduled for auction in 2011. Even the exclusive country-club community of Blackhawk is not immune.

Housing Crisis to End in 2012 as Banks Loosen Credit Standards

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.

Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.


Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.” In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.


Click here to read the whole article.

Bay Area home prices expected to stabilize in 2012

After years of decline, housing prices are expected to stabilize or even increase in some parts of the Bay Area this year, according to a new forecast.

Stabilizing prices are a sign of a healthier market, even though homebuyers still face challenges -- tight credit, not many homes for sale and competition from investors paying cash.

In a report to be released Monday, Clear Capital, a real estate valuations company in Truckee, predicts that prices will remain almost flat this year -- compared with a 4.7 percent drop in 2011 -- in the San Francisco-Oakland-Fremont metropolitan area, including Contra Costa County. Silicon Valley should see a 1.6 percent increase in home prices, compared with a 2.5 percent drop last year, the company said.
"This region overall is doing pretty well," said Clear Capital research director Alex Villacorta.

In three of the past four years, Bay Area home prices have declined from the previous year, including a dramatic 35 percent drop for the San Francisco metro area in 2008 and a 28 percent drop in Silicon Valley that year. Only in 2010 were there slight increases, followed by last year's drop.

See more By Pete Carey of Mercury News