Buffett Backs Homebuilders with a Whopping $800M Investment

The housing sector is undergoing a transformation, with a supply deficit favoring construction companies. Warren Buffett has recognized this trend, acquiring over $800M in homebuilder stocks—an optimistic sign for the property market.

Betting big: Berkshire Hathaway, guided by the Oracle of Omaha, Warren Buffett, revealed an investment of $814M across three major home builders. This move by the iconic investor underscores how home builders are reaping the benefits of this tight supply environment, even amidst the backdrop of rising mortgage rates, which could potentially dampen home sales enthusiasm.

Major stake: D.R. Horton emerged as a primary target for Buffett. Berkshire acquired six million shares in the company, with an estimated value of $726M by the end of Q2. This strategic investment now places Berkshire amongst D.R. Horton’s top 10 shareholders. Alongside this, Berkshire also showed interest in Lennar and NVR, buying over 152,000 and 11,000 shares, respectively.

Shift in strategy: Simultaneously, while investing in these home builders, Berkshire Hathaway has shown restraint in the broader stock market. This selective approach, juxtaposed with a 12% revenue decline in its housing-affiliated subsidiaries, provides insights into the company's current strategic focus. With an eye on U.S. Treasury bills and an impressive $147 billion in reserve, Berkshire seems to be adopting a cautious wait-and-see approach.

Homebuilder landscape: The upward trajectory of the housing sector is undeniable. While the S&P 500 witnessed a commendable 16.5% rise, the specialized S&P Homebuilders Index reported a staggering 36.4% growth. Notably, stocks like D.R. Horton, Lennar, and NVR have showcased strong performances, reflecting the sector's resilience despite challenges like supply chain disruptions and fluctuating interest rates.

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Why it matters: Buffett is showing confidence in homebuilders amidst inventory challenges and their deeper ventures into multifamily and build-to-rent sectors. With D.R. Horton pivoting towards rentals due to rising mortgage costs and Lennar pausing plans amid overbuilding concerns, Berkshire's investment suggests a promising outlook for homebuilders and a potential multifamily market rebound.

Midwest: A Smart Move for Multifamily Investors

When it comes to investing in multifamily properties, the Sunbelt isn't the only option worth considering. Here are three reasons why a growing number of investors are shifting their focus to the markets in the Midwest.

Population Surge: U.S. Census data show a significant rise in people moving from major metro areas to smaller cities or non-metropolitan regions. Cities like Cleveland have seen a high influx of new residents, creating strong housing demand, particularly for multifamily dwellings.

Financially Stable Tenants: Midwest residents are often more financially literate and conservative, which means tenants, who may include professionals like teachers, nurses, or students, are more likely to make timely rent payments and renew their leases. This benefits investors in the long run.

Livability Factor: The Midwest is known for its high-quality schools, less congestion, recreational options, world-class healthcare, and diverse, affordable housing, making it an attractive place to live. As a result, once people move here, they tend to stay, contributing to long-term stable occupancy for investors.

Interested in finding out how to get started investing in the Midwest?

*Disclosure: This post contains sponsored content.

Amazon Announces Major Grocery Revamp Since Acquiring Whole Foods

Amazon (AMZN) has undertaken its most significant transformation in the grocery sector since acquiring Whole Foods six years ago, reshaping its approach with store revamps, automated warehouses, and non-prime fresh-food delivery.

Grocery evolution: Amazon is embarking on a transformation of its grocery business, including renovating stores, testing automated warehouses, and introducing fresh food delivery for non-Prime subscribers. The move also involves merging its various supermarket offerings under one online cart to capture a larger share of the $1.5T US grocery market. Led by former Tesco executive Tony Hoggett, Amazon is strategically entering the competitive landscape dominated by major players like Walmart (WMT) and Kroger (KR).

Streamlining shopping: Beware, big box retail—the e-commerce giant plans to merge its online supermarket platforms (Whole Foods, Amazon Fresh, Amazon.com) into one unified online cart. This initiative aims to simplify the shopping process and provide customers with a seamless experience, counteracting the need for multiple checkouts.

Bold ambitions: Amazon is bolstering its grocery efforts with a team of experienced retail executives, including former Tesco executive Tony Hoggett. The company faces competition from established giants like Walmart and Kroger. Hoggett envisions Amazon transforming from a niche grocer into a cost-conscious shopping destination consolidating consumer trips and spending.

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Expanding fresh food access: Amazon is expanding its Amazon Fresh offering to non-Prime customers across several metro areas, eventually aiming to make this service available nationwide. However, this expansion comes with delivery fees ranging from $7.95–$13.95, potentially influencing customer adoption. The company seeks to simplify purchasing processes by stocking more Whole Foods items in Amazon warehouses and offering a unified shopping cart.

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▶️ Watch: In this episode of Bloomberg Markets, Aetos Capital founder and CEO Scott Kelley discusses the investment opportunities he sees in office real estate.

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Goldman Sachs Pushes For 5-Day Workweek Return

Goldman Sachs (GS) is taking a tough stance on its return-to-office policy, intensifying efforts to enforce five-day-a-week office attendance; however, firms like Goldman, Citigroup (C), and JPMorgan (JPM) are grappling with employee reluctance to resume in-person work.

Goldman's office push: As a vocal advocate of returning to the office, Goldman Sachs is implementing a more robust approach to ensure its employees adhere to its 5-day weekly office policy. While revenue-generating staff have largely resumed full-time office work, the company faces resistance from employees in other departments. HR chief Jacqueline Arthur clarified that while some flexibility is allowed, the company reinforces its existing policy and urges employees to work in the office five days a week.

Industry-wide trend: Peer firms such as Citigroup (C) and JPMorgan Chase (JPM) are also grappling with attendance issues, prompting them to track attendance and encourage managers to enforce their hybrid work guidelines. Citigroup employees were warned about potential consequences, including impacts on pay if they don't adhere to attendance policies. JPMorgan communicated that managing directors must be present in the office every workday.

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Struggles persist: Goldman Sachs' recent efforts highlight that even firms enthusiastic about returning to the office need help convincing employees, reflecting a broader trend in corporate America. As Goldman Sachs and other major financial players navigate the complexities of motivating employees to fully embrace in-person work, balancing flexibility and adherence to office attendance policies remains a central theme.

CMBS Office Maturities Through July

In July, office loans reaching maturity surpassed $1.5 billion, making it the second-largest monthly total in 2023, just behind May's whopping $2.1 billion. While May boasted a payoff rate nearing 50%, July's payoff from the maturing loan balance was a mere 6%. However, when evaluated by the number of loans, July's payoff rate rises to 35.7%. Regardless, it's below the year-to-date average and marks the weakest performance of 2023.

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