Real Estate

We're Not in a Real Estate Bubble, Warren Buffett Says

We're Not in a Real Estate Bubble, Warren Buffett Says
Image credit: Bloomberg / Contributor | Getty Images

Speculation about the future of real estate prices in America is running rampant: Can we expect a crash like that of 2008? Or, will things continue to climb? 

Related: Meet the Real Estate Franchise Backed by Warren Buffett

As a real estate investor, I'm especially interested in trying to figure out what's coming next, so I can better set myself up to potentially profit in the coming years. And I'm hardly alone: Homeowners too are asking questions, wanting to make sure they don't end up upside down on a mortgage if prices suddenly plummet. 

While we can't predict the market pefectly, we can consider indicators that can tell us what kind of market we are in today, giving us a better idea of where things are headed -- and who better to ask about this particular financial market, real estate, than the Oracle of Omaha himself, Warren Buffett? 

Related: Warren Buffett: 5 Down-Home Facts About 'The Oracle of Omaha'

Speaking to thousands of shareholders at the Berkshire Hathaway annual meeting in late April, in Omaha, Buffett responded to a question asked by a friend and colleague of mine, Mindy Jensen. She asked: 

"Warren, in 2012, you told [CNBC's] Becky Quick that if you had a way to easily manage them, you'd buy 100,000 houses and rent them out. How do you feel about the real estate market today?"

Responded Buffett, with a healthy dose of humor: "It's not as attractive as it was in 2012!"  

The Oracle acknowledged the difficulty of predicting where real estate is headed, stating, "We're not particularly better at predicting real estate markets than we are stock or interest rate markets."  (An ironic statement from, arguably, the greatest stock predictor of all time.) 

He then talked about the trend in which real estate cap rates are falling, an indicator that real estate prices are increasing compared to the net income they receive. Buffett tends to advise real estate investors to tread cautiously in justifying the purchase of expensive deals just because the interest rates are still at historic low levels, and at the meeting, he repeated this cautionary note: "There's a great tempation to do it." he said. "I think it's a mistake to do that, but I could be wrong." 

Finally, Buffett ended with some encouraging news for those thinking about buying real estate in today's market, stating, "I don't see a nationwide bubble in residential real estate now, at all. In most of the country, you are not paying bubble prices for residential real estate."

Related: Still Investing in Real Estate Through Traditional Avenues?

To watch the two-minute clip of Buffett's comments on real estate, view the Yahoo Finance livestream recording at the  six-hour, 10-minute, 50-second mark.