Check out what Buffett and Munger had to say about replacement costs at last May’s Berkshire Hathaway shareholder’s meeting: (It’s no typo..he did say $60 MILLION DOLLARS AN ACRE)
Buffett: “A lot of the psychological well being of the American public comes from how well they’ve done with their house over the years. If indeed there’s been a bubble, and it’s pricked at some point, the net effect on Berkshire might well be positive [because the company’s financial strength would allow it to buy real-estate-related businesses at bargain prices]….
“Certainly at the high end of the real estate market in some areas, you’ve seen extraordinary movement…. People go crazy in economics periodically, in all kinds of ways. Residential housing has different behavioral characteristics, simply because people live there. But when you get prices increasing faster than the underlying costs, sometimes there can be pretty serious consequences.”
Munger: “You have a real asset-price bubble in places like parts of California and the suburbs of Washington, D.C.”
Buffett: “I recently sold a house in Laguna for $3.5 million. It was on about 2,000 square feet of land, maybe a twentieth of an acre, and the house might cost about $500,000 if you wanted to replace it. So the land sold for something like $60 million an acre.”
Munger: “I know someone who lives next door to what you would actually call a fairly modest house that just sold for $17 million. There are some very extreme housing price bubbles going on.”
If this is the next bullshit mantra fronm the real estate industry about how prices won’t “go below replacement costs”….then once again they are doomed!! Why don’t some of them “come around” to the realization that they have been wrong!!! It’s okay to make mistakes….just admit them and try to mitigate the damage for your friends and customers…if you don’t…I know of a whole lot of nice houses that are gonna be for sale REAL CHEAP in Arizona that you can probably move to after you’re run out of town!!
