Berkshire Hathaway doubles down on homebuilders

I like to say that real estate was always in my blood thanks to my paternal grandparents. They owned a high-end motel right off the South Carolina coast well before I came into the picture.

But it was probably my mom who taught me the most about the topic.

After my parents split, she became quite the residential real estate broker. I wouldn’t be surprised if she was in the top 10 for in-state sales back then.

That’s how I got a front-row seat to the home-buying process, visiting model houses and watching buyers consider different properties. It was one of the best “classroom” environments I’ve ever experienced.

It created a curiosity in me that’s never gone away. So even though I chose commercial real estate (CRE) as a career, I’ve kept abreast of residential market news. And I have to say…

Today’s situation is about as strange as I’ve seen.

With the 30-year mortgage jumping back up to around 7%, affordability is a definite issue. A $400,000 mortgage at just 3% financing costs roughly $1,686 per month between principal and interest.

At 7%, that figure jumps to about $2,661 – making it outright impossible for most Americans to consider. So, naturally, homebuilders are feeling the pain as well.

That clearly showed in September’s NAHB/Wells Fargo Housing Market Index numbers, where 38% of builders reported cutting prices. And 66% had to use incentives like mortgage-rate buydowns and closing-cost assistance to move inventory.

Worse yet, there were about 488,000 new homes for sale at the end of July, or 9.6-months of supply. And before you go there, builders aren’t homeowners wanting to sell existing properties.

They can’t simply hold off for better conditions to come their way. Their entire businesses are designed around selling new houses.

But, believe it or not, I still see opportunity in this seemingly hopeless situation.

I’m not the only one who sees an opportunity. Berkshire Hathaway (BRK.A)(BRK.B) is sending another strong signal about the long-term outlook for housing.

As I wrote in June, Berkshire acquired Taylor Morrison this year for approximately $6.8 billion in equity value and $8.5 billion in enterprise value. It’s now combining those operations with its existing Clayton Properties Group.

And in the last week, Berkshire doubled down on national homebuilder Lennar (LEN), buying 2.74 million shares. That means it’s closing in on a 10% stake all told.

Combined with its existing investments in competitors D.R. Horton (DHI) and NVR (NVR), it’s clear: Berkshire is betting on the housing market while Wall Street fixates on continuing affordability pressures.

That doesn’t mean investors should blindly follow it, of course. As I’ve noted before, Berkshire has an enormous amount of capital and can play the waiting game much more easily than individual investors can.

It can tolerate volatility… hold through an extended housing slowdown… and even wait years for its thesis to unfold.

Even so, these moves should remind us that the best long-term opportunities often emerge when conditions are uncomfortable. Elevated mortgage rates, pressured affordability, and cautious consumer sentiment have created real risks, yes.

But they’ve also produced attractive valuations.

This is where financially strong homebuilders can separate themselves from the rest. The best operators have the balance sheets, scale, land discipline, and access to capital needed to survive today’s challenging environment and capture market share when conditions eventually improve.

Berkshire is looking beyond the current housing cycle and focusing on the structural shortage of homes across America. And I believe investors should do the same.

That’s why I went right to Wide Moat Intelligence, our new AI-enhanced screening and research platform… which you'll be hearing much more about soon. (So stay tuned!)

It helped me screen for all-important factors such as:

And that’s how I came up with three large-cap names that look intriguing even in the midst of this miserable housing market we’re in.

I already mentioned that size matters in the market, and D.R. Horton is proof of that. It’s America's largest homebuilder, and that scale stands out especially when conditions get difficult.

At the end of June, D.R. had about $6.1 billion of liquidity, including $2.1 billion of cash… though it doesn’t have to rely on that as heavily as you might think these days.

Orders were admittedly flat in the third quarter, and cancellations rose to 20%. However, closings also increased 4% to 23,983 homes. So there was some sunshine to fall back on.

Actually, there’s a lot to like about D.R., like its land strategy. During the first nine months of its fiscal 2026, 67% of the homes it closed on were on lots developed by third parties like Forestar.

That means its capital isn’t so tied up in land, giving it even more financial breathing room.

It also gives it room to return capital to shareholders… which it’s doing aggressively. D.R. repurchased $2.2 billion of stock in that same time frame, reducing shares outstanding 6% year over year.

I’d call that a vote of confidence worth noting.

Next up, we have PulteGroup (PHM), which brings a different set of strengths to the homebuilding table. This company is well positioned to benefit no matter how the market turns.

Its second-quarter home-sale gross margin was 25%. Net new orders rose 6%. And its backlog reached almost 11,000 homes.

Here at Wide Moat Research, we like every single bit of that.

We also like how good its balance sheet looks. PulteGroup ended the quarter with about $1.4 billion of cash, a debt-to-capital ratio of just 12.3%, and a similarly low net debt-to-capital of 3.3%.

And like D.R. Horton, it did some serious stock repurchasing: $373 million worth, in fact.

This all puts PulteGroup in a very good place with enormous flexibility going forward. If housing continues to weaken, it has financial strength to fall back on. If shares fall further, it can just buy more back, as it’s already done. And if merger and acquisition (M&A) opportunities arise, it has the capital to act.

That’s exactly the kind of homebuilder I want to hold during a housing downturn – especially knowing that the housing downturn won’t last forever.

Last but not least, there's Toll Brothers (TOL), which builds luxury houses. It’s not targeting the average homebuyer, so it’s not experiencing the same level of frustration “average” homebuilders are.

Its customer base isn’t struggling to qualify for a mortgage, even at these elevated rates. The tax bracket it targets tends to have greater equity and income, which means they have greater financial flexibility as well.

This doesn’t mean it’s completely immune to current home-buying metrics. But it does hold an enviable position comparatively speaking.

That’s why it still signed a net 2,508 contracts in its recent fiscal third quarter, up from 2,388 in Q3-25. And its home-sale gross margin remained healthy at 23.9%.

Moreover, Toll Brothers ended July with a net debt-to-capital ratio of 15.6%. It had around $1.06 billion of cash available and another $2.24 billion left under its revolver.

As I’ve said in the last two Wide Moat Daily articles (here and here), there is no such thing as a risk-free investment. But this company is in about as good a position as possible for this really bad market.