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Buffett Benefits from Housing Bets

Written By Brian Hicks

Posted August 3, 2012

In a development that is sure to surprise nobody who is aware of Warren Buffett and his prodigious career, the Oracle and Berkshire Hathaway (NYSE: BRK.A) have seen good returns on their strengthened investments into the American housing market.

This week, Class A shares soared to their highest point in over a year. Berkshire reports their second quarter earnings today.

Recently, Buffett not only increased Berkshire’s holdings of Wells Fargo & Co. (remember, Wells Fargo is still the nation’s biggest home lender), but he also acquired various real-estate brokers and offered handsome bids for Residential Capital’s mortgage assets.

In fact, Berkshire’s $13 billion stake in Wells Fargo (as of the end of March this year) makes that the second-largest holding in Berkshire’s entire portfolio.

Back in 2008, he’d traveled to Europe. However, defying expectations of an increased Berkshire command of European companies, Buffett continued to make significant domestic investments, such as acquiring the Texan railroad Burlington Northern Santa Fe.

Bloomberg reports:

“I don’t know if he’s lucky, smart or patriotic, but it’s worked out for him,” Cliff Gallant, an analyst at KBW Inc., said in a phone interview. He estimates that Berkshire will post an operating profit (2FA) of $1,750 a share for the second quarter, a 6.7 percent increase from a year earlier.

Buffett has issued repeated warnings that the euro zone is in a highly vulnerable state and it could all fall apart if European leaders cannot make the necessary adjustments to policy.

On the other hand, he has also stressed his belief that the domestic housing market is on the mend.

Given that Berkshire now has quite a big of stake in home remodeling, financing, and other housing-related business, such a rebound will certainly cause Berkshire’s stock to rise.

Last August, Buffett opted to invest $5 billion in Bank of America preferred stocks while simultaneously rebuffing the requests for capital from European lenders. Bank of America is the second-biggest domestic lender.

Berkshire Hathaway is also going to be the lead bidder for ResCap’s loan portfolio later this year.

As of the end of March, Berkshire’s cash holdings amounted to $37.8 billion.