Warren Buffett addresses housing crisis
As Berkshire Hathaway posted its worst year in 2008, CEO and billionaire investor Warren Buffett offered warnings and advice for 2009. He also promoted “honest” down payments of 10 percent or more for house purchases.
Berkshire Hathaway posted earnings of $4.99 billion, down 62 percent from $13.21 billion in the previous year.
On the matter of the housing crisis, he recommended the nation adopt a conservative approach to home ownership. He wrote:
“Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans). Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay. Homeowners who have made a meaningful down payment — derived from savings and not from other borrowing — seldom walk away from a primary residence simply because its value today is less than the mortgage. Instead, they walk when they can’t make the monthly payments.
“Home ownership is a wonderful thing. My family and I have enjoyed my present home for 50 years, with more to come. But enjoyment and utility should be the primary motives for purchase, not profit or refinance possibilities. And the home purchased ought to fit the income of the purchaser.”
Buffett further pointed to lessons that should be learned.
“The present housing debacle should teach home buyers, lenders, brokers and government some simple lessons that will ensure stability in the future. Home purchases should involve an honest-to-God down payment of at least 10 percent and monthly payments that can be comfortably handled by the borrower’s income. That income should be carefully verified.
“Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective. Keeping them in their homes should be the ambition.”
Berkshire Hathaway owns more than 60 companies in a wide range of industries. Buffett said Berkshire Hathaway’s retail businesses and residential construction businesses — including Shaw carpet and Acme Brick — declined in the 2008 environment. Net income for those businesses declined 3 percent to $2.28 billion.
Armstrong swings to Q4 loss
Armstrong World Industries, a global manufacturer of flooring, cabinets, ceiling panels and other building products, has reported sales of $708.4 million for its fourth fiscal quarter, a 17 percent reduction from sales of $852.4 million in the same period of 2007. Excluding a $27.5 million, or 3 percent, impact from foreign exchange rates, sales decreased 14 percent.
Net loss for the quarter, which ended on Dec. 31, 2008, was $25.5 million. This compares to earnings of $19.6 million in the fourth quarter of 2007.
For the full fiscal year, Armstrong posted sales of $3.39 billion, compared to $3.55 billion in fiscal 2007. Excluding a $57 million favorable impact from exchange rates, net sales increased by 6 percent. Reported income for fiscal 2008 was $81 million, compared to $145.3 million in 2007.
In fourth-quarter results for its individual business segments, Armstrong reported $246.6 million in sales for resilient flooring, an 11 percent decline. Wood flooring recorded net sales of $124.5 million, a decrease of 34 percent. Last quarterOs results for the cabinets unit dropped 27 percent, to $38.6 million. Building products, a division that includes ceiling tiles and suspension systems, posted sales of $298.7 million, a 3 percent dip.
In its outlook, the Lancaster, Pa.-based company predicted difficult conditions in all its markets due to expected declines in European and North American commercial, residential floor and new housing markets. Armstrong has reduced its global work force 10 percent from year-end 2006 and said it anticipates additional headcount reductions of 5 percent to 10 percent in 2009.
Armstrong World Industries operates 40 manufacturing plants in 10 countries with approximately 12,200 employees worldwide.
NAHB objects to interest deduction proposal
A tax proposal from President Barack Obama to cap the mortgage interest deduction for certain households met swift criticism from the National Association of Home Builders (NAHB).
“With the housing market still reeling from its worst downturn since the Great Depression, this is not the time to talk about raising taxes on home buyers and homeowners,” said Joe Robson, chairman of the NAHB.
Obama’s proposal would cap the value of deductions for things like charitable donations, mortgage interest and investment expenses for couples making more than $250,000. The change would raise an estimated $180 billion over 10 years. The higher tax rates would pay for an expanded health care initiative.
“This proposal will increase the cost of housing for many middle-class families, particularly in high-cost areas such as California and the Northeast, which will only further undercut the housing market, exert more downward pressure on home values and work against the President’s efforts to stabilize housing and turn this economy around,” said Robson.
“The proposed budget would also tax a ‘carried interest’ as ordinary income, which could significantly impact the multi-family and commercial real estate sectors at a time when they are already experiencing a severe downswing,” Robson continued. “At this critical point in the recession, we should be doing everything we can to stimulate demand in housing and avoid proposals that would reduce housing affordability and further destabilize prices.”