Greg Abel Committed $6.8 Billion to Homebuilders Like Lennar, Increasing Berkshire's Stake by 30%, Even as Mortgage Rates Sit Near 7.5% and Builder Sentiment Hits Multi-Year Lows. Is This Bold Conviction or a Costly Miscalculation?
Key Points
Wall Street tends to be myopically focused on near-term events.
Greg Abel is the CEO of a company that thinks long term.
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The housing market is not in a good place right now, with rising prices pushing the dream of home ownership out of reach for many people. Rising interest rates make the story even worse, since they increase the cost of taking out a mortgage. Greg Abel, the CEO of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), doesn't seem to mind these concerns because he's investing in housing companies anyway. Here's why this isn't a big mistake, and it all has to do with time.
Housing is a bad story, and Wall Street knows it
Investors tend to think short-term, punishing even historically well-run businesses if near-term performance is weak. That's basically the story in the housing sector, where stocks like Lennar (NYSE: LEN) have plunged over the past year. Abel stepped in to buy when the stock was roughly 40% below its 52-week high, increasing Berkshire's ownership stake in the business to roughly 10%.
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That's not the only investment in housing that the new CEO of Berkshire Hathaway has made. He bought all of Taylor Morrison Home earlier in the year for $6.8 billion. This is a very big bet on the housing market, which is struggling right now. That said, people will always need a place to live, and many would likely buy a home if they could afford it.
Greg Abel is basically taking advantage of the negative view of housing to build a long-term position in a sector that history and human nature suggest will eventually recover. This is Berkshire Hathaway being opportunistic, even if the timing doesn't turn out to be perfect. And it can afford to do things like this because the conglomerate doesn't think in the short term. Moreover, with more than $350 billion in cash at the end of the second quarter of 2026, it has the financial strength to stick with investments even if the investment story requires several years to play out.
The same old Berkshire Hathaway playbook
Greg Abel isn't actually doing anything out of the ordinary at Berkshire Hathaway. Former CEO Warren Buffett was known for making big investments in companies that were deeply unloved but historically well-run. In the short-term investing in such companies can look like a mistake, but more often than not, Buffett's bold bets turned into long-term winners as the businesses recovered. Basically, if history is any guide, it is way too soon to call Greg Abel's housing bet a miscalculation.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Lennar. The Motley Fool has a disclosure policy.
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