Tags: Gandel | Buffett | house | inflation

Fortune's Gandel: Buffett's 'Crystal Ball a Little Fuzzy' on Real Estate

By    |   Tuesday, 21 October 2014 01:34 PM

Fortune Senior Editor Stephen Gandel was none too impressed with investment legend Warren Buffett's comments about real estate at a conference earlier this month.

The Berkshire Hathaway CEO suggested people should opt for a 30-year fixed mortgage to hedge against a declining dollar and rising interest rates.

"You would think that people would be lining up now to get mortgages to buy a home," Buffett said. "It's a good way to go short the dollar, short interest rates. It is a no-brainer."

So what's the flaw with that reasoning?

"You have to buy a house, or own one," Gandel argues. "You can't borrow against a house you don't own. A bank won't let you do that. And it's not clear that a house would be the best investment if the dollar were to drop in value."

And while you would benefit from having fixed mortgage payments as opposed to rising rent payments, "the extra growth you get on your stock market portfolio, compounded over 30 years, will more than make up for what you lose on rental inflation. And the higher inflation goes, the worse an owner will do," Gandel says.

"If you want to worry about inflation, you’ll have company. But buying a house shouldn’t make you feel any more protected," he adds.

"When it comes to buying real estate, the Oracle of Omaha's crystal ball is a little fuzzy."

Gandel's advice for Buffett? "Stick to your day job."

Meanwhile, many real estate professionals object to the view that their industry is in a bubble.

"We don't think there's a broad-based bubble in the real estate market today, nor do we think there's one coming in the next year or two," Chris Graham, senior managing director at Starwood Capital Group, said at a conference last week, CNBC reports.

"There's still room for upside here."

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Fortune senior editor Stephen Gandel was none too impressed with investment legend Warren Buffett's comments about real estate at a conference earlier this month.
Gandel, Buffett, house, inflation
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2014-34-21
Tuesday, 21 October 2014 01:34 PM
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