Warren Buffet says the U.S. has reduced new housing starts to a number far below the rate of household formation which means that within a year or so residential housing problems should largely be over…

Warren Buffett, in his annual letter to shareholders, steers clear of discussing prospects for the overall economy. But he touches on real estate and housing finance as they affect Berkshire Hathaway’s Clayton Homes, which makes modular housing units.

Mr. Buffett cites two reasons for the industry being “in shambles.” (Industry output of manufactured homes has fallen from 382,000 units in 1999 to 60,000 units in 2009.)

1) Historically low housing starts (554,000 units in 2009), which “must be lived with if the U.S. economy is to recover.”

“Paradoxically, this is good news,” he writes. “People thought it was good news a few years back when housing starts –- the supply side of the picture -– were running about two million annually. But household formations –- the demand side –- only amounted to about 1.2 million. After a few years of such imbalances, the country unsurprisingly ended up with far too many houses.”

Read the full article, “Warren Buffett on Housing” in the Wall Street Journal (Feb 27, 2010).

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