People constantly talk about predicting that the Toronto Housing Market is going to burst, but would you really believe them when investment genius Warren Buffet himself bought shares at mortgage lending company Home Capital Group Inc.? This isn’t just a show of support! This is a vote of confidence from the financial guru himself!
A Game-Changing Move
Berkshire Hathaway Inc., a company by Warren Buffet, is buying an investment of 38% shares in Home Capital for a whopping C$400 million ($300 million). They are also providing a C$2 billion credit line to support the Toronto-based Home Capital Inc. This deal means that Buffet is wading waist deep in a housing market that’s been called over-leveraged and overvalued due to the fact that home prices in Vancouver and Toronto still continue to rise in the wake of record-breaking household debt levels.
It should be noted that Home Capital got involved in one of the huge controversies affecting the Canadian housing market when they were accused by regulators of misleading their investors about mortgage fraud in April. This issue sparked rumors that this event would be the driving force that will bring down the housing market – a housing market correction that has been predicted in the past by the International Monetary Fund and Fitch Ratings Inc.
Buffet’s investment and huge credit line extended to Home Capital strongly suggest that he’s not thinking that the Canadian housing market will collapse anytime soon; but let’s not disregard the fact that he is reaping huge rewards for the risk because he got a 33% discount for buying the shares. He will also be making 9% interest on tapped portions of the loan.
Investors are Flocking In
In a Home Capital statement issued by Buffet in last month, he said that Home Capital’s leading market position, its ability to start and underwrite well-performing mortgages, and its strong assets make his move a very attractive investment.
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