Did New Berkshire Hathaway Leadership Make a Costly Early Misstep

Mortgage rates are rising, making it harder for people to afford a home. The housing market has been stalled for quite some time, as affordability issues existed even before mortgage rates began rising. This is a terrible backdrop for homebuilders like Lennar (NYSE: LEN). And yet, Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), under new CEO Greg Abel, has been buying that stock, building its position to 10%, and it recently completed its $6.8 billion acquisition of Taylor Morrison Home. Is this a costly early misstep?

Greg Abel is doing things his way

Housing has long been a part of conglomerate Berkshire Hathaway's business. The company has a deep knowledge of the sector, which tends to be cyclical. The company's housing exposure was originally built under former CEO Warren Buffett. So Greg Abel isn't exactly charting his own course with his investments in home builders.

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Greg Abel's big departure from Buffett is that he has explicitly stated that Taylor Morrison Home will eventually be integrated with other Berkshire Hathaway businesses to create a larger division. Buffett usually allowed companies under the Berkshire umbrella to operate independently. But there's a similarity between Buffett and Abel that's important when it comes to housing: Buffett often bought stocks and entire companies when they were unloved. The housing market is deeply unloved today, with Lennar stock down 40% from its 52-week high.

If you were looking to buy housing companies on the cheap, now might be a good time since the rest of Wall Street appears to hate them. There are good reasons for that investor concern, but you often find the best values in an industry when it is facing hard times.

A housing mistake or an opportunistic, long-term investment

Right now, with mortgage rates rising and housing stocks falling, it is easy to see why investors would consider Abel's housing investments an early misstep. But that's a short-term view, while Berkshire Hathaway has long viewed investing as a long-term endeavor. That was Buffett's approach, and Abel's housing push suggests it is his approach, as well. Buy when others are fearful, as the old saying goes, and then hold for the long term.

Basically, it is too soon to tell if Abel has made a mistake. But before you pass judgment, you may want to ask yourself a simple question: Are people going to stop living in houses? The logical answer is no, which suggests that there will eventually be a housing recovery in what is a traditionally cyclical industry. And Berkshire Hathaway clearly plans to be there to benefit when the current downturn ends.

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.