Warren Buffett’s Real Estate Play Gets Goldman Sachs Upgrade As Housing Stocks Enter Pivotal Week

In a week of high stakes and market-moving reports, Warren Buffett-backed D.R. Horton (DHI) has taken center stage with a significant boost from Goldman Sachs. The real estate industry is on the edge of its seat as critical housing reports loom on the horizon, scheduled for release throughout the week. DHI shares surged on Monday, underscoring the anticipation surrounding these developments.

Goldman Sachs analyst Susan Maklari’s endorsement on Monday elevated D.R. Horton from a “neutral” to a “buy” rating, despite a slight reduction in the stock’s price target from 132 to 131. This adjustment, still representing a substantial 26% increase from the previous Friday’s closing price, reflects Goldman Sachs’ optimism. The rationale behind this upgrade revolves around several factors, including limited housing inventory available for sale, affordability constraints, and the accelerating trend in mortgage rates. These elements are expected to drive consumer preference for quick move-in homes.

Maklari emphasized that while short-term challenges like economic uncertainty and seasonality might affect the industry, D.R. Horton is well-equipped to navigate these obstacles, thanks to its operational expertise.

A Pivotal Week for Real Estate Stocks

D.R. Horton, with Warren Buffett’s financial backing, saw a 0.9% gain in its stock on Monday, closing at 104.58. The preceding Friday had witnessed a 1.3% increase, bringing D.R. Horton’s stock to 103.66.

The week ahead carries significant weight for the homebuilder stocks. Housing starts, building permits, and existing home sales data for September, along with the National Association of Homebuilders’ sentiment survey for October, are poised for release. These stocks have found a level of support around their 200-day moving average after reaching a peak in September. However, their attempt at a rally last week was met with resistance at the group’s 50-day moving average.

Warren Buffett’s Investment in Homebuilder Stocks

Homebuilder stocks made substantial gains in the first half of the year, primarily due to increased demand driven by rising interest rates, which redirected buyers toward newly constructed homes. The Building-Residential/Commercial industry group currently stands at an impressive 20th out of 197 groups tracked by IBD. Collectively, these stocks have surged over 29% in 2023, although they have retraced some ground from their early September peak.

Warren Buffett’s Berkshire Hathaway (BRKB) entered the scene, placing bets on the supply-constrained U.S. housing market. Berkshire Hathaway’s Q2 report revealed new positions valued at over $800 million in S&P 500 stocks, including Lennar, D.R. Horton (DHI), and NVR (NVR).

Warren Buffett's investments in the homebuilding sector underscore a strong belief in the long-term potential of real estate, even in the face of supply constraints and market fluctuations.

Addressing the Long-Term Housing Shortage in the U.S.

Zooming out, the United States grapples with a persistent housing shortage. The construction of new homes has lagged behind the growing population, exacerbated by rising material costs, supply chain disruptions, and labor shortages stemming from the Covid-19 pandemic.

The National Association of Realtors (NAR) estimates a deficit of approximately 5.5 million homes, a gap so substantial that, even with accelerated new-home construction, it would take over a decade to bridge.

Warren Buffett: Housing Data

The National Association of Homebuilders will release its Housing Market Index, a sentiment gauge for builders, on Tuesday. After four months above 50, the index slipped to 45 in September. Economists anticipate a stable reading of 45 for October, although any deviation could trigger market reactions.

On Wednesday, the Commerce Department will unveil housing starts data for the previous month. Thursday will see the release of existing home sales data by the National Association of Realtors.

In August, existing home sales declined by 0.7% to a seasonally adjusted annual rate of 4.04 million. Compared to the previous year, these sales fell by 15.3%, even as the median existing-home sales price rose by 3.9% to $407,100.

Michael DiNello noted: “The persistent rise in home prices despite lower sales indicates that supply remains a significant challenge. To alleviate pricing pressure, a substantial increase in housing supply is needed.”

In this pivotal week for the real estate market, the spotlight remains firmly on D.R. Horton and its peers, as the industry navigates a complex landscape shaped by a range of factors, from economic headwinds to the pressing need for increased housing supply. As the week unfolds, the market watches and waits for the outcomes of these critical housing reports, seeking clarity in a dynamic and ever-changing real estate environment.

Vanguard Real Estate

Michael DiNello

Co-Founder | Managing Partner

Mr. DiNello spearheads the company’s vision and directs development and brokerage operations. With nearly two decades of expertise in real estate brokerage, acquisition, and development in the Metropolitan Detroit market, his leadership is grounded in extensive industry experience.