Warren Buffett, the CEO of Berkshire Hathaway, parent of HomeServices of America, which, through 20-locally branded firms is the nation’s second largest real-estate brokerage, described what he sees as a primary reason for the slowdown in the industry in his annual letter to shareholders, released March 1.
Buffett wrote: “The slowdown in residential real estate activity stems in part from the weakened lending practices of recent years. The ‘optional’ contracts and ‘teaser’ rates that have been popular have allowed borrowers to make payments in the early years of their mortgages that fall far short of covering normal interest costs.
“Naturally, there are few defaults when virtually nothing is required of a borrower. As a cynic has said, ‘A rolling loan gathers no loss.’ But payments not made add to principal, and borrowers who can’t afford normal monthly payments early on are hit later with above-normal monthly obligations. This is the Scarlett O’Hara scenario: ‘I’ll think about that tomorrow.’ For many home owners, ‘tomorrow’ has now arrived.”
