November 26th, 2012
More Signs of the Recovery
What do one of the greatest investors of all times and one of the top economists in the country have in common? They both think it’s a great time to buy a house. Warren Buffett has made a number of investments designed to profit as the housing industry recovers. The most recent of these acquisitions was the takeover of Residential Capital LLC, as I covered in a previous blog. Buffett is at it again, this time buying a Canadian real estate investor and brokerage firm. The company, combined with Buffett’s existing brokerage, sold some $72 billion in real estate in 2011, making them a significant player. Buffett recently remarked that if he could, he would buy a couple hundred thousand single family homes. Earning a commission each time a home is bought or sold seems to be the next best thing. This investment, along with his past purchase of a brick company and real estate brokerage operations in Oregon and Connecticut, is testament to his bullishness on housing and the economic recovery.
That brings us back to the economist, Robert Shiller, of the famous Case-Shiller home price index. He stressed a few weeks ago that this is a very good time to buy a house. The current record low interest rates factor into his bullishness, but there are certain challenging areas that give him pause. Among these are the financial crisis in Europe, unrest in the Middle East, the pending fiscal cliff and the speculative nature of the housing market. Among the factors that would support the bullish case are rising consumer sentiment and recovery in new construction, home prices and home sales. A further benefit stems from the fact that foreclosures are dropping.
Having highlighted further evidence that the residential recovery is gaining strength, what about the commercial segment? In this market segment, we’re fortunate that a number of publicly traded companies provide us with valuable information. Apogee Enterprises, Inc., announced at a recent shareholder meeting that they are profitable again and that they have the largest backlog of new business that they have had in the past 12 quarters. Like many companies, they right-sized and cut costs during the downturn. Now that the market is recovering somewhat, they are using their additional cash flow to invest in geographic expansion, plant upgrades and acquisitions. Apogee sees architectural firms hiring again and the rejuvenation of a number of previously stalled projects, including large projects. The positive signs keep coming . . .