Key Details:
- ResiClub reports that Warren Buffett’s 2024 selloff of 5.97 million D.R. Horton shares and Ivy Zelman’s latest market analysis both point to mounting pressure on homebuilder stocks, which have been the second-worst-performing S&P 500 subsector since October.
- Rising land costs, increased incentives, and affordability constraints are squeezing builder margins, especially in high-inventory markets like Florida and Texas.
- Lennar is forecasting 19.0%-19.25% gross margins for Q1 2025 and Toll Brothers is seeing margin pressure despite its resilient high-end market
Homebuilder stocks are taking a hit. And if Warren Buffett’s moves last year were any indication, it’s a trend that some saw coming.
I’m paraphrasing the headline in a new ResiClub article that highlights Berkshire Hathaway’s early 2024 divestment of 5.97 million shares of D.R. Horton—the lion’s share of the more than $800M investment made in early 2023.
The question is whether that move signaled a change in Buffet’s confidence in homebuilder stock as a sound long-term investment.
If you’re in real estate, this shift isn’t just stock market noise; it has real implications for builders, homebuyers, and resale sellers in key markets.
Since late October 2024, homebuilders have been the second-worst-performing subsector of the S&P 500, and analysts are now sounding the alarm on margin pressure heading into 2025.
In a recent CNBC interview, Ivy Zelman, the executive vice president of Zelman & Associates, highlighted the headwinds homebuilders are facing right now—including more recent concerns about tariffs and deportations.
In yesterday’s Hot Sheet, Byron Lazine broke down Ivy Zelman’s insights into the spring selling market, as well as what she’s seeing for both near-term and long-term stock performance for industry-leading homebuilders.
Tune in to learn what’s happening, why it matters, and how you as an agent can use this information to guide your clients.
Buffett’s Selloff & Market Decline
In his 1996 letter to shareholders, Warren Buffett famously wrote:
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
Cut to early 2024, when Buffet’s firm, Berkshire Hathaway, dumped 5,969,714 shares of D.R. Horton—just months after making a major bet on three prominent homebuilder stocks:
- D.R. Horton (No. 120 on the Fortune 500)
- Lennar (No. 119 on the Fortune 500)
- NVR (No. 376 on the Fortune 500)
At the time, some questioned whether this move signaled trouble ahead. Now, with multiple analysts downgrading their short-term outlooks and homebuilder stocks facing a potential 20% downside, investors are asking for some clarity.
If, as Buffet wrote, it makes no sense to invest in a stock unless you’re willing to stick with it for ten years (not waffling back and forth every time stock values fluctuate), has Buffet officially decided against investing in homebuilder stock? Or has he simply modified his investment to better reflect his confidence in homebuilder stock in proportion to other sectors?
In the CNBC interview, Ivy Zelman acknowledged the near-term challenges for homebuilders while still voicing her confidence in top homebuilder stocks (and particularly Toll Brothers) as a solid long-term bet.
“The group [of homebuilder stocks] as a whole is probably going to remain under pressure. When we look for where do we buy them blindly and we’re going to buy the group? You probably have another 20% downside. But if you have a long term view and you’re looking for which companies on a relative basis, we like Toll [Brothers]. That’s our top performer that we think long term will be the best [homebuilder] stock to own because they have a more resilient consumer base. Their consumer is at the high end where there’s significant resiliency. So we like that, but I know in the near term to own them now is going to be difficult because the headwinds are not going to abate necessarily.”
Earlier this month, Barbara Corcoran weighed in on housing, echoing Zelman’s confidence in the luxury market:
“I really like the luxury market. I hate to say, I’m very bullish on that, particularly in warm climates. All the rates… are going up almost double the national average. And that’s a pretty good report card.”
Homebuilder Margins Under Pressure
During the Pandemic Housing Boom, homebuilders raked in record profit margins as demand skyrocketed. But when the frenzy cooled in mid-2022, many builders kept sales rolling by adjusting affordability where needed.
Even so, margins remained above pre-pandemic levels heading into 2024.
Now, that margin compression is making a comeback, here’s what you need to know (from Zelman’s analysis and ResiClub’s data):
- Builders lack pricing power and are increasing concessions to maintain sales.
- Land costs are rising, putting additional strain on margins.
- Certain markets—especially in Florida and Texas—are seeing inventory bounce back, forcing builders to make deeper affordability adjustments.
What This Means for Homebuyers & Sellers
The impact of margin compression varies depending on your market position.
- For 2025 homebuyers: Builders in high-inventory markets (like Florida and Texas) are offering larger discounts and incentives to move spec homes. If you’re buying new construction, there may be significant deals available.
- For 2025 home sellers: Increased builder incentives can cool the resale market as more buyers opt for new homes instead of existing ones. If you’re selling, price positioning and strategic marketing will be crucial.
How Real Estate Pros Can Use This to Guide Consumers
For agents, understanding these shifts is critical to serving your clients well. Here’s how to apply this knowledge:
- Educate buyers on builder incentives – New construction may offer better affordability right now. If your clients are considering both resale and new homes, show them what builders are offering in their area.
- Advise sellers on pricing strategy – If you’re in a market where builders are slashing prices, your sellers need a game plan to compete. Help them understand local trends and set realistic expectations.
- Keep an eye on builder stock performance – If margins compress faster than expected, the stock market reaction could hint at even deeper discounts coming from builders. Stay ahead of the curve.
2025 is shaping up to be a pivotal year for homebuilders, and the best agents will be the ones who understand the market and adapt their strategies accordingly. Whether you’re guiding buyers toward better deals or helping sellers navigate a shifting landscape, this is your opportunity to step up and deliver real value.
