Berkshire Taylor Morrison bet suggests housing market has bottomed
mega deal announcement between Berkshire Hathaway and top 10 publicly traded home builders Taylor Morrison Home Page It came as a surprise to many in the industry. But the consensus is that this makes perfect sense and could signal optimism in the currently beleaguered housing market.
Berkshire Hathaway agreed on Sunday to buy the nation’s sixth-largest publicly traded construction company in a $6.8 billion deal. The offer represents a 24% premium to the builder’s closing price on May 29 and values the company at about $8.5 billion, including debt.
This comes at a time when the U.S. housing market is struggling with high and unstable mortgage rates, as well as rising construction costs and weak consumer confidence. The war with Iran also dealt a blow to the housing market.
Taylor Morrison laid out a somewhat aggressive, multi-year growth plan about 15 months ago.
“We’ve definitely seen some changes in the market, so we stand by the goals we’ve laid out. The timing could definitely be at risk,” Taylor Morrison CEO Sheryl Palmer said in an interview Monday on CNBC’s “Squawk on the Street.” “I think one of the things that excites us so much is that homebuilding is in five-, seven-, 10-year cycles, which Berkshire thinks is probably in seven-, 10-year cycles.[year] and longer cycles. “This harmony is very rare.”
This is the long-term horizon why most analysts say this is the right time for a deal.
“It’s telling that very sophisticated buyers think valuations have hit rock bottom,” said Margaret Whelan, founder and CEO of Whelan Advisory, which specializes in mergers and acquisitions of homebuilding companies. “I assume savvy buyers will wait and buy later, or pay less if they think the market is still down.”
Whelan explained that stock values predict fundamental returns: “That means the housing market will probably start to bottom out soon, which is a good thing, because I don’t think anyone really knows when we don’t know what’s going on with rates.”
John Burns, founder and CEO of John Burns Research and Consulting, said the outlook for the housing market over the next few years is not bright, and stocks are being punished as a result.
“But long-term thinkers like Berkshire Hathaway and Japanese companies see this as a platform to buy big companies over the long term, and it really is that simple,” Burns said.
U.S. homebuilders have been targeted by Japanese buyers lately. Sumitomo Forestry recently closed a $4.5 billion deal to acquire Tri Pointe Homes. In total, Japanese companies now have 33 home builders operating in the United States.
“A lot [homebuilder] “Stocks are currently valued at or below book value due to the short-term outlook for the industry, which is exactly when long-term focused investors can find great opportunities,” Burns said. he said.
Dream Finders Homes recently tried to buy Bezer Houses It was bid for approximately $704 million, but Beazer’s board rejected the offer, saying in a statement that it “significantly undervalued” the company.
Berkshire is buying before the expected recovery in the housing market occurs.
Sales of newly built homes fell 11.3% year-on-year in April, according to government data. Both single-family housing starts and building permits were also lower on a yearly basis. Homebuilder confidence has remained in negative territory for the past two years, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
“Maybe that means it’s going to bounce off the bottom for two years. I doubt it. I think we have pent-up demand,” Whelan said, adding that he expects the war with Iran to end next spring. “I think we’ll be ready for it in ’27, so buying six months early isn’t that hard for a company like this.”
Correction: This article has been updated to correct the name of John Burns Research and Consulting.
