By Andrew Frye and Prashant Gopal – Apr 13, 2012 12:01 AM ET
Ron Peltier, the executive building Berkshire Hathaway Inc. (BRK/A)’s real-estate brokerage by acquisitions, said he expects a rebound in U.S. home sales as banks liquidate seized properties after settling foreclosure-misconduct claims.
Transactions (HSANEHSL) will probably rise to about 5 million this year from 4.3 million in 2011, Peltier, chief executive officer of Berkshire’s HomeServices of America Inc., said yesterday in an interview. Existing-home sales will get a boost from lenders like JPMorgan Chase & Co. and Bank of America Corp., which in February resolved claims of abusive foreclosure practices brought by states and the federal government, he said.
“The banks still have very large numbers of distressed or foreclosed real estate inventory,” Peltier said. “They are now going to be making those properties available, and given the low inventories across markets, it’s probably a good time to be selling.”
Bank of America and New York-based JPMorgan were among five banks that agreed to pay $25 billion to end probes by state and federal authorities. The deal should lead to an increase in foreclosure filings, which fell in the first quarter to the lowest in more than four years, according to Irvine, California- based data firm, RealtyTrac Inc.
Berkshire, led by Chairman and CEO Warren Buffett, is adding to housing-related businesses as the company prepares for an eventual end to the slump. Minneapolis-based HomeServices agreed in the last two months to buy brokerages in Connecticut, Oregon and the state of Washington. Peltier said he will seek further deals and plans to enter the Northern California market within two years.
‘Show a Pulse’
“It’s good timing because the market is, as we said, finally starting to show a pulse,” Peltier said.
Competitive bidding, which has been largely missing from most parts of the U.S. residential market, is prevalent from Seattle and Silicon Valley to Miami and Washington D.C. where the supply of homes listed for sale has shrunk. The inventory of homes is close to a six-year low.
Buffett, 81, erred in early 2011 when he predicted a housing recovery would begin within a year or so. The market is “healing,” Buffett said in a February letter to Berkshire investors, as buyers forming households are reducing the stock of properties for sale.
“There’s virtually a dangerously low inventory of existing homes,” Peltier said. “It is not a bull market, but it is a very, very solid market.”
Sales (ETSLTOTL) of previously owned houses held in February near an almost two-year high, the National Association of Realtors said March 21. Purchases fell 0.9 percent to a 4.59 million annual rate from a revised 4.63 million pace in January. The association’s projection for home sales in 2012 is 4.65 million, spokesman Walter Molony said in an e-mail today.
Of all purchases, cash transactions accounted for about 33 percent of the sales. Distressed sales, comprised of foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 34 percent of the total.
“An unbelievable number of transactions are cash,” Peltier said. “They’re bought by investors seeing the incredible value today of home prices, and they can rent them.”
Last year, Berkshire’s Acme Brick acquired a Montgomery, Alabama-based company for $50 million. Berkshire’s carpet-maker, Shaw Industries, bought an artificial-turf maker that offers putting greens for private residences.
Operating income at HomeServices advanced 41 percent last year to $24 million as the company cut expenses. Operating revenue dropped about 2.7 percent to $992 million on a decrease in average home prices.
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