Berkshire Extends Housing Bet With Brookfield Venture
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) is extending its bet on the U.S. housing market by forming a venture with Brookfield Asset Management Inc. (BAM/A) as low interest rates, inventory and prices spur a real-estate rebound.
Berkshire’s HomeServices of America Inc. unit will be the majority owner of the venture to manage a U.S. residential real- estate affiliate network, according to a statement on the new company’s website. The firms plan to offer a new franchise brand, Berkshire Hathaway Home Services, starting next year. Brookfield’s network has operated under the Prudential Real Estate and Real Living Real Estate brands.
Berkshire’s managers have been positioning the firm to benefit as the U.S. home market recovers from its worst slump in seven decades. The Omaha, Nebraska-based company has bought a brickmaker, won the loan portfolio of bankrupt mortgage lender Residential Capital LLC at auction and built its HomeServices unit by agreeing to acquire real-estate brokerages in states including Oregon and Connecticut.
“We have significant inventory shortage across the country” and prices have fallen, HomeServices Chief Executive Officer Ron Peltier said in a phone interview. “When you add the pieces up together with low interest rates, we see a housing market that will continue to improve.”
Berkshire Class A shares declined less than 1 percent in New York trading on Oct. 26 to $129,725 and have gained 13 percent this year. Brookfield, based in Toronto, advanced 1.9 percent yesterday to C$34.90 and has surged 24 percent since Dec. 31.
Buffett, 82, said in July that the U.S. home market was beginning to improve. Berkshire’s billionaire chairman and CEO tracks economic activity, in part, by studying the results of the company’s more than 70 operating businesses including ones that build manufactured homes, make paint and sell insulation.
“It was just a question of getting households in balance with” the supply of homes, Buffett told Bloomberg Television’s Betty Liu in a July 13 interview. “That happens in different paces in different parts of the country, but you have seen a much better balance developing here in recent months. And that’s why you’re seeing some pickup in prices in places.”
Housing prices rose 2 percent in August from a year earlier, the biggest gain since July 2010, according the S&P/Case-Shiller index of property values in 20 U.S. cities. The number of homes for sale in the U.S. dropped 18 percent last month from a year earlier, according the National Association of Realtors website.
Federal Reserve policy makers have said they will keep borrowing costs near zero to help stimulate the economy. That’s led to near record-low interest rates on home loans. The average rate on a 30-year fixed mortgage was 3.63 percent, the Mortgage Bankers Association said last week.
The new company, HSF Affiliates LLC, will have a combined network of more than 53,000 agents operating in about 1,700 U.S. locations and who generated $72 billion in sales last year. The network will give HomeServices exposure to markets such as New York, Boston and Northern California, Peltier said.
Hurricane Sandy, which made landfall in New Jersey this week, may decrease inventory in the Northeast as homeowners assess damage, Peltier said. The storm battered homes in coastal states that account for about one out of every five U.S. real estate sales.
“Short-term, it makes properties harder to sell when parts of neighborhoods have been devastated,” he said.
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