Omaha, NE – August 22, 2025 – Warren Buffett’s Berkshire Hathaway has once again made waves in the financial world, disclosing significant investments in homebuilder stocks during the second quarter of 2025. According to the company’s latest 13-F filing, Berkshire purchased approximately 5.3 million shares of Lennar (NYSE: LEN) and increased its stake in D.R. Horton (NYSE: DHI), bringing its total holdings in these homebuilders to over $1.8 billion. This move has sparked speculation: is Buffett betting on a housing market rebound fueled by lower mortgage rates, or is there another rationale behind these investments? Here’s a deep dive into the context, motivations, and implications of Berkshire’s latest play.
The Context: Housing Market Challenges
The U.S. housing market has faced significant headwinds in recent years, with affordability at historic lows. The 30-year fixed mortgage rate, which peaked at 8% in late 2023, has eased to 6.58% as of August 2025, the lowest since October 2024, according to Freddie Mac. Despite this decline, home prices remain elevated, with the median U.S. home price at $412,300 in Q2 2025, up 4.7% year-over-year, per the National Association of Realtors. New home inventory has climbed to a 9.8-month supply, approaching levels not seen since the Great Financial Crisis, and new home sales dropped 13.7% in May 2025.
These conditions have made homebuilding stocks volatile. Lennar shares fell from $178 in September 2024 to nearly $100 in April 2025, while D.R. Horton dropped from $200 to $125 over a similar period. Yet, Buffett’s renewed interest in these companies suggests he sees opportunity where others see risk.
Buffett’s Moves: A Closer Look
Berkshire’s Q2 2025 13-F filing reveals a strategic focus on homebuilders:
- Lennar (LEN): Berkshire acquired 5.3 million shares in Q2, adding to 1.8 million shares purchased in Q1 and 200,000 in 2023, totaling over 7 million shares valued at approximately $800 million.
- D.R. Horton (DHI): Berkshire increased its position, making it one of the top shareholders of the nation’s largest homebuilder, with a stake worth over $1 billion.
- Nucor (NUE): Alongside homebuilders, Berkshire invested in this steel manufacturer, which supplies materials critical to housing construction, suggesting a broader bet on real estate-related industries.
This isn’t Buffett’s first foray into homebuilders. In Q2 2023, Berkshire initiated positions in Lennar, D.R. Horton, and NVR, investing $814 million, only to sell its D.R. Horton stake by year-end 2023 for a 20% gain. The re-entry into these stocks, particularly at a time when homebuilder sentiment is at its lowest since December 2022 (NAHB index at 32), raises questions about Buffett’s strategy.
Is It a Play on Lower Mortgage Rates?
A key hypothesis for Buffett’s investment is the anticipation of lower mortgage rates, which could stimulate housing demand. Here’s why this theory holds weight:
- Rate Sensitivity: A 1% drop in mortgage rates is equivalent to an 11% reduction in home prices in terms of affordability. If rates fall further—Fannie Mae forecasts 6.4% by Q4 2025 and 6.0% by Q4 2026—homebuilders could see increased sales without needing to offer costly rate buydowns (e.g., 2.99% in year one, 4.99% thereafter), improving profit margins.
- Market Expectations: The bond market anticipates Federal Reserve rate cuts, with an 83% chance of a 25-basis-point cut in September 2025, per the CME FedWatch Tool. Posts on X echo this sentiment, with users like @SokolGeoff suggesting Buffett’s homebuilder bets align with expected rate reductions.
- Homebuilder Resilience: Despite high rates, homebuilders like Lennar and D.R. Horton have outperformed the S&P 500 in 2023 and 2024, leveraging in-house lenders (e.g., DHI Mortgage, Lennar Mortgage) to offer rate buydowns that attract buyers.
However, lower rates alone may not fully explain Buffett’s move:
- Affordability Concerns: Even at 4.43%, Zillow analysts argue homes remain unaffordable in major markets like New York and Los Angeles, suggesting rate cuts may not unlock significant demand.
- Inventory Dynamics: New home inventory is high, but existing home sales are suppressed due to the “rate lock-in” effect, where homeowners with sub-4% mortgages are reluctant to sell. This drives demand to new homes, benefiting builders regardless of rate trends.
Alternative Motivations: Value and Structural Trends
Buffett’s investments may reflect his classic value investing philosophy rather than a pure bet on rates:
- Undervaluation: Both Lennar and D.R. Horton trade at price-to-earnings ratios around 11, below the S&P 500 average, offering attractive valuations. Their recent share price drops presented a buying opportunity, consistent with Buffett’s “be greedy when others are fearful” mantra.
- Housing Shortage: The National Association of Realtors estimates a 5.5–6.8 million unit housing gap, with housing starts at 1.4 million annually, signaling long-term demand for new homes.
- Operational Strength: D.R. Horton reported Q4 2023 revenue of $10.5 billion, up 9% year-over-year, with new orders surging 37%, indicating resilience despite high rates.
Risks to Buffett’s Bet
While the investment appears strategic, risks remain:
- Rate Uncertainty: Strong jobs data (e.g., 45,000 jobs added in Canada, U.S. unemployment at 4.2%) could delay Fed rate cuts, keeping mortgage rates elevated.
- Consumer Struggles: An Equifax report noted 1.4 million U.S. consumers missed credit payments in Q2 2025, signaling financial strain that could dampen homebuying.
- Inventory Overhang: A 9.8-month supply of new homes could pressure prices if demand doesn’t materialize.
Visualizing Homebuilder Performance
To illustrate the performance of Buffett’s picks, here’s a comparison of Lennar and D.R. Horton stock prices versus the S&P 500 SPDR Homebuilder ETF (XHB) in 2023–2025:
This chart highlights the volatility in homebuilder stocks, with significant drops in early 2025 creating the value opportunity Buffett seized.
Conclusion
Buffett’s renewed investment in Lennar and D.R. Horton likely reflects a combination of factors: anticipation of lower mortgage rates boosting affordability, undervalued stocks offering a margin of safety, and a structural housing shortage driving long-term demand. While lower rates (potentially 6% by 2026) could catalyze a homebuilding boom, Buffett’s value-driven approach suggests confidence in these companies’ resilience even if rates remain elevated. Investors should monitor upcoming Fed decisions (September 18, 2025) and housing data (e.g., new home sales, August 26) for clues on whether Buffett’s bet will pay off. For more insights, visit sec.gov for 13-F filings or freddiemac.com for mortgage rate updates.