Tags: Buffett | Shilling | real | estate

Buffett and Shilling Clash on Vision for the Future of Real Estate

By    |   Friday, 02 Nov 2012 07:36 AM

Warren Buffett is moving into the real estate brokerage business by adding 53,000 real estate agents to the Berkshire Hathaway family. His recent purchase of the Prudential and Real Living franchises from Brookfield Asset Management will make Berkshire Hathaway HomeServices the fourth largest network of agents in the industry, according to rankings published by the National Association of Realtors.

Based on data from Berkshire’s latest annual report, real estate sales from the new agents might add $88 million in earnings to Buffett’s conglomerate. But it is obvious Buffett believes the residential real estate market will improve. In 2005, Berkshire pocketed more than $150 million in earnings from sales of its real estate agents.

Meanwhile, Robert Shiller, co-developer of Standard & Poor's/Case Shiller home price index, told CNBC that he believes it will take 50 years for the home market to recover after a once-in-a-lifetime bubble. For the next five decades, Shiller thinks home prices will track the rate of inflation.

In the past, home prices did track inflation, and the bubble seen in some parts of the country distorted that relationship temporarily.

Buffett has signaled he expects home sales to continue relying on expensive real estate agents, which implies homeowners will not adapt to technology and demand lower commissions from real estate agents.

Shiller is most likely correct and homeowners facing slow growth in prices will want to lower selling costs that can approach 10 percent of the sales price. This makes Buffett’s bet seem ill timed, unless he intends to reinvent the residential real estate market in a way that benefits consumers.

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MichaelCarr
Warren Buffett is moving into the real estate brokerage business by adding 53,000 real estate agents to the Berkshire Hathaway family.
Buffett,Shilling,real,estate
263
2012-36-02
Friday, 02 Nov 2012 07:36 AM
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