Is Warren Buffett Signaling a Housing Recovery?

by Robert Williams, Publisher
Thursday, November 5, 2009

Warren Buffett is teaming-up with Goldman Sachs as the investment bank attempts to buy $3 billion of tax credits from taxpayer-owned mortgage firm Fannie Mae.

According to The Wall Street Journal, investments in low-income housing tax credits has waned dramatically in the face of the credit crisis.

Credits are being sold for between 65 cents and 79 cents on the dollar. By comparison – at the height of the real estate boom – developers were fetching 95 cents on the dollar.

(Property developers receive tax credits – worth between 30% and 60% of a project’s cost – to encourage building in low-income areas and to hold rents down. They typically then sell the credits to large financial institutions for the tax benefits they offer.)

Although Buffett and Sachs surely intend to use the credits to shield profits against taxes, they wouldn’t be speculating here if they didn’t think the credits represented a bargain.

Think about it. Demand for affordable-housing tax credits is picking up. And the only way that can happen is if developers are breaking ground again. And trust me, nothing gets built these days – given the state of the economy – unless a project is a cinch to sell.

As such, use this as further proof of a housing rebound. (The Case-Shiller home-price index just showed U.S. home prices logged their third monthly increase in August.)

But that’s not all that Buffett’s been up to.

David Fessler gets you up to speed on Buffett’s decision to buy railroad firm, Burlington Northern Santa Fe. And offers up a way to profit from the deal.

Ahead of the tape,

Robert Williams

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