Buffett’s Homebuilder Bet: A Bold Move or a Major Misstep?

The Oracle’s of Omaha’s Surprising Reveal

Investors worldwide hang on every utterance from Warren Buffett,. His annual shareholder letters are dissected for wisdom, and his quarterly SEC 13F filings trigger market speculation.

When Berkshire Hathaway’s (NYSE:BRK-A)(NYSE:BRK-B) latest filing revealed new stakes in a trio of homebuilders echoing his foray into the space in 2023, many investors were surprised. Although this repeat play suggests confidence in the industry’s recovery, with housing signals flashing bright red, many wonder if Buffett is misreading the market thiss time — or is this a contrarian masterstroke?

A Tough Housing Landscape

The housing market paints a grim picture, even with anticipated Fed rate cuts in September. According to data from the U.S. Census Bureau and the National Association of Realtors, new homes now cost $33,500 less than existing homes — an historic inversion, with new home median prices at $402,000 versus $435,000 for existing homes. It is something that has only happened six times in the last 26 years, according to Reventure App.

Sales also slumped 6.6% year-over-year in July, though inventory has improved with only 9.8 months’ supply. Yet Freddie Mac data shows mortgage rates are down to 6.58%, it is still double the 2021 low of 2.65%, which deters buyers. 

Construction costs are also soaring, with lumber up 30% since 2023 and labor shortages persisting. This suggests a poor investment climate, even if rates ease. Now, maybe the stocks were just too cheap for Buffett to pass up — and analysts estimate he made a profit on his last housing market bet — such relative short-term trading activity isn’t Buffett’s style.

Yet it suggests these homebuilders are not buy-and-hold investments for the Berkshire Hathaway portfolio. Investors will want to tread carefully.

D.R. Horton (DHI)

D.R. Horton (NYSE:DHI) is the U.S.’s  largest homebuilder by volume, commanding a $50 billion market cap and a reputation for efficiency. Yet, its fiscal third-quarter earnings revealed a 7% revenue decline, with homebuilding pre-tax profit margins collapsing from 17% last year to 13.8% due to rising material costs — lumber alone adds $10,000 per home. 

The homebuilder’s P/E ratio of 13 looks reasonable, but a saturated market and flat new orders signal trouble. Executive chairman David Auld said, “New home demand continues to be impacted by ongoing affordability constraints and cautious consumer sentiment.” With 60% of its portfolio in the South, where affordability is waning, DHI’s growth may stall. Additionally, its reliance on entry-level homes faces pressure as first-time buyer demand weakens amid high interest rates. 

The company’s $7.2 billion debt, while manageable, could strain cash flow if construction delays mount, a risk heightened by supply chain issues. This combination of thinning margins and regional exposure makes DHI a risky buy despite its scale, especially if the housing recovery lags.

Lennar (LEN)

Lennar (NYSE:LEN), valued at $34 billion, faces a lighter burden than DHI as its debt has declined in 2025, easing the strain on its finances with rates above 6%. Net margins on home sales, which stood at 15.1% last year, plummeted to under 9% in the second quarter. The company has transitioned from an aggressive land acquisition strategy to one that is asset-light, and led to the spinoff of the REIT Millrose Properties  (NYSE:MRP) in February.

len

To move inventory, though, Lennar is heavily reliant on sales incentives. According to ResiClub, an average of 13.3% of the final sale price is paid with incentives — its highest rate since 2009 and dramatically higher than the 1.5% it used in 2022.

Moreover, its exposure to high-cost markets like California and Florida, where price corrections loom, adds risk. The firm’s $5.4 billion liquidity offers a buffer, but analysts warn that rising serious delinquencies in auto loans — 5% just last month — could spill into housing, testing LEN’s resilience. 

This leverage and market-specific challenges make it a precarious investment now.

NVR (NVR)

NVR (NYSE:NVR), with a $23.6 billion market cap and a stock price over $8,200 per share, caters to the custom-home niche, boasting a P/E of 17. However, its 11% order decline year-to-date so far this year reflects weakening demand, particularly in its mid-Atlantic stronghold (down 17%).

Land costs have risen substantially year-over-year, eroding margins, while its focus on higher-end buyers clashes with affordability woes. NVR’s premium valuation assumes a housing rebound that current data — 1 in 3 homes for sale being new — doesn’t support. Its low debt-to-equity ratio of 0.3 is a strength, but an increase in operating costs due to labor shortages offsets this. 

NVR’s reliance on a niche market could falter if luxury demand cools, and its $1.2 billion backlog, while solid, may not offset broader market stagnation. Order cancellations jumped to 16.5% in Q2 from 12.9% last year. This limits upside, suggesting caution for investors given the sector’s current headwinds.

Key Takeaway

Betting against Buffett is often a losing proposition. His 2023 homebuilder play is estimated to have yielded significant gains, showcasing his foresight. Yet, today’s market stacks challenges: high prices, stubbornly high interest rates, soaring costs, and a 50% drop in affordability since 2021, according to the Housing Affordability Index. Even Buffett’s genius might struggle against these headwinds. 

While his contrarian bets have historically paid off, the current housing slump could test his streak. The Oracle of Omaha may prove prescient again, but when even Buffett has a short-term holding mindset, it may not be a good investment for everyone to follow.

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