Warren Buffett Bets Big on US Housebuilders. Will the Stocks Keep Rallying?

Warren Buffett's Berkshire Hathaway on Monday unveiled an $814 million investment in three US housebuilders.

Under-building after the global financial crisis has caused a significant deficit of more than 1 million homes in the US, Citigroup analysts led by Anthony Pettinari wrote. Most measures suggest "the market does not have a path to close the housing deficit in the near-term."

Adding to the crunch, the Federal Reserve's fast-paced rate hikes are keeping many current homeowners from selling their homes because they don't want to get saddled with a much-higher mortgage rate.

Therefore, the demand for brand-new homes is red hot and the largest builders are benefiting the most, according to Pettinari.

Inventory was down 18% annually during the four weeks ending Aug. 6, the largest decline since the beginning of 2022. Meanwhile, new listings dropped 16%, according to a report on August 10 from Redfin.

Tight inventory helped push the US housing market total valuation a new all-time record of $46.8 trillion in June despite slow demand.

Deutsche Bank recently released a paper that concluded that the U.S. housing market was simply navigating a mid-cycle crisis last year, and the shortage of housing supply would keep builders busy in the years ahead.

Still, analysts warn to watch for factors that could threaten the sector's growth.

"Builders are in the business of building shelter capacity," said Carl Reichardt, a homebuilders analyst a BTIG. "Shelter capacity right now is very low. So the headwind to the group is if shelter capacity that isn't bought by the homebuilders increases."