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If you’ve been paying attention to news in the real estate sector, you will know that new construction has faced many challenges since the beginning of the COVID-19 pandemic. From rising prices of construction materials to labor shortages and, most recently, high mortgage interest rates, the homebuilding industry has had more than its fair share of hard knocks. Indeed, homebuilder confidence dropped for three consecutive months in 2023.
And yet one of the most respected, successful investors out there invested in three big construction companies last year. Warren Buffett’s Berkshire Hathaway disclosed investments in D.R. Horton, Lennar, and NVR, with a total investment of $814 million. And that’s against Berkshire’s overall wait-and-see approach.
When Buffett invests, it’s worth paying attention to what he’s doing. Smaller investors have long mimicked Buffett’s behavior, and his decisions have considerable sway over the stock market. Following the disclosure of Buffett’s construction investments, shares of D.R. Horton increased 2.8%, and Lennar’s went up 2%.
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If you’re a real estate investor, what should you make of this move since it seems as if Buffett’s vote of confidence goes against the grain of an overall environment of low confidence in the sector? What does Buffett know that we don’t, and should investors consider copying his strategy?
On its face, there’s nothing especially controversial about Berkshire’s investment strategy. All three construction companies that were picked for investment are long-standing players in the sector with reliable growth rates. They’re not risky investments.
However, the fact that Buffett singled out the construction industry from other potential investment opportunities does stand out. Buffett’s decision…