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Buffett's Berkshire Is True Test of Housing Recovery

Tickers in this article: LEN WFC KBH

NEW YORK ( TheStreet) -- Amid nascent signs of a housing recovery Warren Buffett -run Berkshire Hathaway's (BRK.A) second quarter earnings stand as a key barometer of a true rebound, after many previous false starts.

Recent earnings and economic reports give housing optimists some clear -- albeit selective -- data to crow that a recovery is underway, after years of lukewarm results kept the market near post-boom lows. But Berkshire Hathaway -- Buffett's conglomerate spanning from railroads to industrials, utilities and even newspapers -- may actually be a worthy litmus test on what is a true housing recovery.

That's because Berkshire Hathaway owns a national grab bag of housing-related businesses that would be resilient to a one-off earnings boom, but also reflective of widespread and durable increases in housing related construction, home improvement and finance activity, were they to appear.

While the earnings of banks and homebuilders may be an early read on a true housing rebound, their volatile earnings also can also misleading. More important in talk of a housing rebound is whether they can sustain widespread gains to the economy, which could be a tailwind for everything from consumer spending to small business hiring and travel.

>>View Warren Buffett's Portfolio

Berkshire owns paint retailer Benjamin Moore , Clayton Homes , the largest producer of homes in the country, in addition to other housing-focused businesses like Acme Brick , Shaw in carpets, Johns Manville in insulation and MiTek in roofing.

In 2011, Buffett's housing related companies -- excluding Benjamin Moore and correlated housing businesses like Borsheims furniture -- reported a profit of $513 million. But housing remained a drag on Berkshire's overall earnings and was likely one of the reasons for the conglomerate's flat 2011 stock performance.

It has been the biggest laggard through the recovery as other Berkshire subsidiaries have grown, no surprise, and Buffett was early in calling a rebound in housing, something he apologized for in his most recent Berkshire Hathaway annual letter.

"I was dead wrong," wrote Buffett. Berkshire's 2011 housing related earnings were over 70% below 2006 levels of $1.8 billion, reflecting just how big the housing bust may be dragging on Berkshire -- and by proxy, the U.S. economy.

Recently, Buffett's commentary on the housing market has been more cautious, acknowledging improvement but not willing to make the mistake twice of signalling an all-clear.

In July, headed into earnings, Goldman Sachs analysts upgraded their earnings estimates for homebuilders like KB Home (KBH) and M.D.C. Holdings (MDC,) , citing a "strong US housing recovery."

After a surge in second quarter earnings from home-builders like Lennar(LEN) and KB Home, some are calling a housing bottom.

"Evidence from the field suggests that the 'for sale' housing market has, in fact, bottomed and that we have commenced a slow and steady recovery process," said Lennar CEO Stuart Miller, in a statement released with the company's second quarter earnings.