• Discounts and special offers
  • Subscriber-only articles and interviews
  • Breaking news and trending topics

Already a subscriber?

By signing up, you accept Moneywise's Terms of Use, Subscription Agreement, and Privacy Policy.

Not interested ?

Munger’s bear case

Munger and Buffett’s concerns could be based on the fact that foot traffic near stores in metropolitan areas is 10% to 20% below pre-pandemic levels while office attendance is 30% lower than before COVID, according to a recent report by the consulting firm McKinsey. The report predicts that, because of these trends and other factors, demand for office space could still be almost 20% lower in 2030 than it was in 2019.

That’s bad news for commercial landlords. It’s worse news for their lenders. Munger said in an April interview with the Financial Times that the U.S. banking sector was “full of … bad loans” in the commercial real estate sector. Eventually, higher interest rates, lower rental income and resulting lower property values could send some of these loans underwater — meaning that the outstanding balance will be greater than the value of the underlying properties.

However, the pain doesn’t necessarily mean opportunity for investors like Munger. “Berkshire has never really been active in commercial real estate,” he said during a Q&A session with CNBC’s Becky Quick at the May shareholder meeting. “It works better for taxable investors than it does for corporations taxed the way Berkshire is.”

Instead, the billionaire investor duo seems to have spotted a lucrative opportunity in another segment of the real estate market.

Trading Tips for All Levels: Avoid These 5 Expensive Mistakes

Don't let costly errors derail your trading success. Learn about the five most expensive mistakes in options trading and how to avoid them, whether you're just starting out or have years of experience. Enhance your trading strategy today and stay ahead of the game!

Learn More

Homebuilders

Instead of focusing on commercial real estate, Berkshire Hathaway is more actively involved in residential property development, having added stakes in several homebuilders in recent months.

The portfolio now includes sizable positions in D.R. Horton (DHI), Lennar (LEN), and NVR (NVR). A potential boom in homebuilding could benefit them all.

According to the National Association of Realtors, there is a housing shortage of between 5.5 to 6.8 million units. That’s because there have been more households formed than homes built over the past decade since the Great Financial Crisis. Now that lumber prices are lower and there’s persistent demand, investors are betting on a housing boom.

Retail investors can also get involved in this space through a publicly listed homebuilder or the S&P SPDR Homebuilder ETF (XHB).

Sponsored

This 2 Minute Move Could Knock $500/Year off Your Car Insurance in 2024

Saving money on car insurance with BestMoney is a simple way to reduce your expenses. You’ll often get the same, or even better, insurance for less than what you’re paying right now.

There’s no reason not to at least try this free service. Check out BestMoney today, and take a turn in the right direction.

Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.