Few industries were as savagely beaten down during the recession as housing. Today, few industries have as much potential to rebound.
What are CEOs from some of the nation’s largest homebuilders saying about the housing industry? I scanned through a pile of recent conference call transcripts to find out.
Although the pace of the housing market recovery is gaining momentum, it is important to keep in mind that we are still in the early stages of the recovery. And there’s a long way to go before the industry reaches normalized activity levels …
There isn’t a city we’re in today that doesn’t have a lot of opportunity. The California recovery has become strong enough. And I’ve been and talking about it for the last probably 6 earnings calls, but every city we’re in has a similar recovery occurring, where there’s a desirable area with no inventory, a lot of price movement upward, and then the recovery will ripple out to the other areas adjacent and so on and so on.
Housing is recovering, and the recovery is consistent, healthy and growing stronger. We saw from yesterday’s housing starts and permits numbers that the recovery in housing is continuing to progress in both multifamily and single-family products. This data confirms what we’ve seen in the field for some time.
There has been an underproduction of housing during the downturn, as we produced as few as 550,000 homes per year during the downturn of both multi- and for-sale product. This is very close to the rate at which homes become obsolete. So for some of those years, we had essentially no net production against the normalized household formation rate of some 1.25 million annually. This shortfall will have to be made up, and the market is beginning to move in that direction.
The country is growing. The homebuilding industry, the opportunities have never been greater for the large builders. The capital markets are open and I would say in all the years I’ve been in business, this is probably the clearest period of time that I have seen as to the future of the housing industry for those who would have excess to capital.
We’re clearly raising prices on each and every one of our communities on a house by house, on a subdivision by subdivision basis … We do have costs which are going up in some of our markets and with some of our subcontractors but clearly, our pricing power is exceeding the cost increases that we have today …
We’re trying to replenish our lot supply. To be quite frank with you, Phoenix turned around faster than we thought it was going to turn around and we probably are scrambling a little bit more than we normally would in the Phoenix market to replenish our lot supply, and the same thing in the Albuquerque market.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
You can enter your email below to get our FREE report. In the same report you can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12-24 months. We initially share this idea in October 2018 and the stock already returned more than 150%. We still like this investment.
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Wall Street Legend Warns: “A Strange Day Is Coming to America”
“A massive and surprising new transition could determine the next group of millionaires,” says Chaikin, who predicted the 2020 market crash. “While leaving 99% of the public worse off than before.”
“If you own regular stocks, you’re in for a big surprise,” he adds.
“I grew up in a world where you could do extremely well by investing in ordinary companies,” Chaikin says. “It’s how I spent the majority of my 50-year career on Wall Street.
