Here’s Why Buffet is Betting on the Housing Market
As further evidence that Berkshire Hathaway (NYSE:BRK.B) chairman and chief executive Warren Buffett remains bullish on the housing market, the firm announced on Wednesday that it had partnered with Brookfield Asset Management (NYSE:BAM) to launch a new brokerage brand.
In July, Buffett told Bloomberg Television that the U.S. housing market was beginning to improve, and August’s housing data showed that sales of previously occupied homes and the construction of new homes had increased from a year earlier. Furthermore, the U.S. Federal Reserve’s policy of keeping interest rates close to zero has led to near record-low interest rates on home loans.
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In order to capitalize on the real-estate rebound, the company plans to offer a new franchise brand, Berkshire Hathaway Home Services, beginning next year. The resulting real-estate affiliate network will incorporate Brookfield’s Prudential and Real Living real estate brands with the company’s brokerages.
“Berkshire Hathaway HomeServices is a new franchise brand built upon the financial strength and leadership of Brookfield and HomeServices,” Buffett said in a company press release. “I am confident that these partners will deliver value to the residential real estate industry.”
HomeService chairman and chief executive Ron Peltier told the Associated Press that the deal will give the company a national franchise network to complement its local brokerages; Prudential and Real Living’s 53,000 agents generated residential real estate sales of $72 billion in 2011. Peltier said that the unit decided to acquire a franchise rather than build its own because the latter would be too costly and time consuming.
However, in the next several years, the Prudential and Real Living brands will be eliminated. “The strategy going forward is to migrate the franchises over to one super brand: Berkshire Hathaway HomeServices,” Peltier said.
According to the press release issued by the firm, the combined networks will enable “brokers and affiliates to attract and retain the best agents to provide superior customer service and to drive performance and profitable growth.”
While the financial terms of the deal were not disclosed, Berkshire’s HomeServices of America unit will be the majority owner of the venture.
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