Berkshire is buying into housing, and so am I

Here’s what I wrote on June 4, almost three full months ago:

That was my (very logical) conclusion after learning that Warren Buffett’s company was buying up Taylor Morrison Home Corporation, a homebuilder and developer. And I’m sticking with it today five weeks after the sale officially closed.

I’m also sticking with my assessment that this was a smart move on Berkshire’s part. While it might seem like nothing is changing in the housing market, the stage is still being set for a solid and lasting upswing.

Yes, even with the rate hike that might be right around the corner.

I doubt that negative news is fazing Berkshire, even though Taylor Morrison isn’t just a homebuilder. It also has mortgage, title, escrow, and homeowners insurance operations, plus its Yardly built-to-rent platform. It’s basically one big housing ecosystem, making it one big bet on the sector.

If that sounds unwise, remember that this isn’t Berkshire’s first move into the housing market. It also owns:

So, yeah, I trust that Berkshire knows what it’s doing in this regard – even as some sources question its judgement. But that doesn’t mean I think mom-and-pop investors should follow its lead just yet.

Two seemingly contradictory statements can be right at the same time. Buying up homebuilders can be an excellent play for an enormous company like Berkshire Hathaway…

But not right for a mom-and-pop investor with much more limited resources.

For one thing, Berkshire’s housing portfolio is pretty small compared to everything else it holds. The company is most heavily invested in sectors such as:

So it’s pretty well insulated from any further housing market issues if things somehow turn further south from here. Which they probably won’t. It’s much more likely that it will take months more for enough economic parts and pieces to start working out in homebuyers’ obvious favor.

Berkshire can afford to wait for the big boost it’s clearly predicting while the rest of its portfolio grows. If you can claim the same, then be my guest and follow its lead in buying into homebuilders at worthwhile prices.

Otherwise, I’d probably be a bit more cautious considering how there doesn’t seem much promise that a boom is right around the corner.

Home Depot (HD) executives even recently described the housing market as being essentially "frozen." And that's a pretty good description.

Would-be homeowners are quite simply stuck renting until something changes for the better – whether that means mortgage rates falling, home prices falling, incomes rising, or some combination of the three. And, frankly, we just don’t know when any of that will happen.

What we do know is that people still need somewhere to live in the meantime.

Normally a statement like that in an article like this would mean a pivot to publicly traded apartment owners. And, certainly, I’ve done my fair share of recommending such real estate investment trusts (REITs) before.

I’ve particularly pointed out Sunbelt-focused plays such as Mid-America Apartment Communities (MAA). And I’m not saying that’s a bad place to look at today, provided the REITs in question are well-priced.

However, that’s not the only place residential real estate investors can look at while they wait for the American Dream to pick up again. There’s another rental option available that’s much more overlooked.

I know it’s contrarian, but I’m still a big fan of single-family rental (SFR) owner American Homes 4 Rent (AMH). The REIT operates SFR homes, collecting rent from people who can’t quite afford a house but want to live in one anyway.

Its stock has been under pressure ever since the beginning of the year, when President Trump called out institutional homebuyers. His allegation – and many other politicians’ on both sides of the aisle – has been that SFR owners are contributing to the housing shortage and sky-high prices alike.

Therefore, they need to be reined in.

It’s a topic I’ve written about repeatedly since the national discussion began, including in July, where I acknowledged that the recently passed ROAD to Housing Act “complicated” American Homes’ capabilities.

However, as I quickly added, it didn’t destroy them.

If anything, American Homes 4 Rent’s second-quarter results were pretty encouraging. Core funds from operations (FFO) came in at $0.49 per share, which was a penny better than expected. Meanwhile, same-store revenue rose 2.3% and occupancy improved to 96%.

In another positive sign, blended lease spreads increased to 2.7%. This included 1.4% growth on new leases and 3.2% on renewals.

As such, management raised its 2026 core FFO guidance by $0.03 to $1.95 per share, which implies roughly 4.3% annual growth.

I also like American Homes’ internal development platform, where it expects about:

Thus proving my point that the company might be more limited in its growth options now. But that’s not even close to being a death sentence.

We can see this further in how American Homes repurchased around $123 million of stock last quarter. That puts its year-to-date total at roughly $238 million. Yet the company still maintains solid liquidity and manageable leverage.

In short, there’s a lot to like.

American Homes’ stock is currently trading for about $33 per share. By my assessment, this puts it at an attractive place to buy.

That means it’s selling for approximately 19.2x FFO instead of its normal 23.4x. And while a little bit of concern is justified, that difference we’re currently seeing is probably taking the fear factor too far.

The stock’s current devaluation also means investors get to collect a 3.9% dividend yield while they wait for the stock to bounce back.

All things considered, I believe there are multiple catalysts that could drive both earnings and valuation improvement from here, including:

Then add in the broader affordability challenge that continues to push many would-be homeowners toward single-family rentals. It all makes for a very real possibility that today’s political and regulatory overhang will prove less damaging than predicted.

In which case, this is a housing investment opportunity I’m very willing to build on.

Happy SWAN investing,

Brad Thomas
Editor, The Wide Moat Daily