Warren Buffett Dumps Housing Stocks: It’s Time To Rethink Your Portfolio, Too

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Many investors watch Warren Buffett‘s trades, hoping to duplicate the success of the so-called “Oracle of Omaha.” Recently, Buffett watchers saw the famed investor jettison some housing stocks from his portfolio. Is it time for you to do the same? Let’s take a closer look.

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Buffett Sells D.R. Horton After Less Than 6 Months

Buffett sold Berkshire Hathaway’s investment in D.R. Horton (NYSE:DHI), the largest homebuilder in the U.S. Buffett purchased nearly 6 million shares in August 2023, worth more than $700 million, and had sold them by the end of the year. This was a surprisingly short duration for Buffett, who typically buys stocks he likes and holds them for the long term.

Along with other housing stocks. D.R. Horton had a very strong performance in 2023, delivering a 70.5% return on the year. So why did Buffett sell off this position within a short (for him) time period?

D.R. Horton returned 70.5% in 2023, so perhaps Buffett thought that there would have to be a correction in the stock price. While the stock hasn’t fallen this year, it’s nearly perfectly flat year to date. DHI opened at $149.88 on January 2, 2024 and closed at $149.38 on May 21, 2024.

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Buffett’s Other Housing Positions

It’s interesting to note that Buffett also invested in Lennar (NYSE:LEN) and NVR, Inc. (NYSE:NVR), yet has not sold those positions. Both of those stocks have risen in 2024, with NVR rising 9.68% and LEN up 11% year to date.

These positions were smaller than the DHI buy. Berkshire Hathaway purchased just over 150,000 shares of LEN and slightly more than 11,000 shares of NVR. Together, these two positions were worth about $100 million.

In 2023, Lennar was up 64.7% and NVR was up 51.8%. These are significant returns, but these two companies had the two lowest rates of return of the top 10 largest publicly traded homebuilders in 2023.

Pressures on Home Builders

With interest rates up and appearing to be willing to stay there for the short term at least, it would make sense for homebuilders to be under some pressure. But in 2023, builders of single-family homes provided some relief to consumers who were constrained by interest rates.

The reduced prices and interest rate relief that homebuilders offered made new construction more affordable than existing properties. In addition, the number of existing homes available for sale remained low, which further buttressed sales of new construction.

What’s Ahead for Single Family Builders?

There’s no crystal ball for the housing market, but Fannie Mae expects more home sales transactions in 2024 than there were in 2023, and the price of homes is expected to moderate. These expectations, along with the decrease in costs that could come from the recent ruling that should reduce broker commissions, could impact sales of both new and existing homes positively.

A rapid decline in mortgage rates could drive prices up again, but a measured rate reduction strategy would give builders time to increase inventory so that prices and demand will moderate. Whether this will come in 2024 remains to be seen.

Buffett’s uncharacteristically speedy exit from a single homebuilder stock doesn’t indicate a complete rejection of the category. Berkshire Hathaway still holds some homebuilder stocks, and they may have a place in your portfolio too, although perhaps to a lesser degree.

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This article originally appeared on GOBankingRates.com: Warren Buffett Dumps Housing Stocks: It’s Time To Rethink Your Portfolio, Too