Huffpost Business

Warren Buffett Bets Big On Mortgage Company Residential Capital, Housing Market

Posted: Updated:
Warren Buffett, CEO of Berkshire Hathaway, has bid $3.85 billion on Residential Capital, a mortgage company. Buffett has been expressing optimism about a housing recovery for months.
Warren Buffett, CEO of Berkshire Hathaway, has bid $3.85 billion on Residential Capital, a mortgage company. Buffett has been expressing optimism about a housing recovery for months.

Warren Buffett seems pretty confident the housing market is making a comeback.

How confident? Well, he just ponied up $3.85 billion for a mortgage company.

The Berkshire Hathaway CEO, who is famous for huge deals, is again betting big, this time on Residential Capital LLC, a troubled mortgage unit held by Ally Financial.

ResCap, as it's known, filed for bankruptcy last month, and both the loan portfolio and the business itself will soon be up for auction. Buffett's company has filed to bid $2.4 billion on the mortgage unit and another $1.45 billion on the portfolio, according to Bloomberg.

The move reflects the same kind of optimism about the near-future housing market that Buffett has been displaying for months.

In a February letter to Berkshire shareholders, Buffett admitted he'd been "dead wrong" in predicting a housing recovery for 2012. Then, not three paragraphs later, he was listing the reasons why such a recovery was, in fact, inevitable.

"Every day we are creating more households than housing units," Buffett wrote, explaining why he expected housing demand to roar back soon enough. "People may postpone hitching up during uncertain times, but eventually hormones take over. And while 'doubling-up' may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure."

A trickle of recent data seems to support Buffett's view, though the reality is more complex and perhaps less sunny than the Oracle of Omaha would tell you.

Property values are indeed rising in many regional markets, and there's a good chance they'll keep going up, since developers are reportedly running out of good places to build new homes. Interest rates are low, which will likely encourage borrowing.

But there are still more than 11 million homeowners underwater, according to a recent report in The Washington Post. The high unemployment rate is keeping wages essentially flat for many people. And credit is still much harder to come by than it was before the housing crash, which could put a brake on recovery.