Housing Market Slump: Should You Follow Berkshire?

The U.S. housing industry is reeling. Pending home sales fell 7.3% in September from the prior month and 11.3% year-over-year, with declines across every region. Mortgage rates near 7.4% have crushed affordability, and a chronic supply shortage of roughly 10 million homes persists.

Investors have fled homebuilder stocks, with the SPDR S&P Homebuilders ETF (XHB) down 10% over the past year and Lennar (LEN) plummeting 36%. Yet Berkshire Hathaway (BRK.B) is going contrarian. In September, it boosted its Lennar stake to 11% with a $53.9 million purchase, bringing its total investment to $2.2 billion. In July, it acquired homebuilder Taylor Morrison for $6.8 billion and will merge it with its Clayton Properties Group to create the fourth-largest U.S. homebuilder.

Berkshire CEO Greg Abel acknowledges no quick recovery but sees housing as a long-term opportunity. The conglomerate is positioning itself to capitalize when the market eventually turns.

Berkshire's move underscores a deep-value bet on a beaten-down sector. With its massive resources and patience, Berkshire can weather prolonged weakness and emerge with expanded capacity. For homebuilders like Lennar, Berkshire's backing provides validation but doesn't erase near-term challenges: high rates, weak demand, and margin pressure.

The broader industry remains under pressure. Rising mortgage rates, driven by Fed tightening and competition for capital from AI infrastructure and government borrowing, are unlikely to reverse soon. That means homebuilder stocks could stay depressed for a while. However, the supply-demand gap is a structural tailwind that will eventually support a recovery.

Winners will likely be those with scale, balance sheet strength, and patience—like Berkshire and perhaps Lennar. Losers could be smaller builders unable to withstand the downturn. Investors should focus on long-term fundamentals rather than short-term noise.