Buffett Sees End To Residential Real Estate Slump in 2011

In his annual letter to Berkshire Hathaway shareholders, billionaire investor Warren Buffett predicted the U.S. residential real estate market will recover from its current doldrums by next year, which is when he predicts demand for houses will catch up with the excess supply created in the housing bubble.

“Within a year or so, residential housing problems should largely be behind us,” Buffett wrote in the letter. “Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits. Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means.”

Buffett cautioned in his letter that “high-value houses and those in certain localities where overbuilding was particularly egregious” will take longer to recover from the slump. He identified overbuilding as a prime cause of the housing market crash, noting that in a recent year when housing starts were running at an annual pace of two million units, new household formation lagged seriously behind the supply, at only 1.2 million.

He said that the resulting halt in housing construction was the best of three possible ways to correct the imbalance.

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