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Pundits have been proclaiming that the housing sector has bottomed and is about to turn around since virtually the beginning of the housing crisis. No less an authority than Robert Toll, CEO of major homebuilder Toll Brothers (NYSE: TOL ) , claimed that "we may be seeing a floor" way back in December. December of 2006, that is. Even Warren Buffett called the bottom too early, admitting to Berkshire Hathaway (NYSE: BRK-B ) shareholders that his 2011 bet on housing was dead wrong.
But Buffett's grinning today. Data released Wednesday suggests that the housing bottom isn't just around the corner; it's already behind us.
The U.S. Census Bureau announced Wednesday that housing starts, or the number of new homes beginning construction, reached their highest level since July, 2008. In September, 872,000 new homes began construction, a increase of 15% since August and 35% since this time last year. Economists had expected an average of only 768,000, which would have been a much more modest increase.
This big jump follows an upward revision of August's numbers, as well as a string of reports from the National Association of Home Builders indicating better sentiment in the residential construction industry and data from the Schiller-Case Home Price Index showing gathering strength in home prices.
The Census Bureau also released on Wednesday its estimate of the number of building permits granted in September, which is a strong predictor of future home starts. The 894,000 new permits granted represent a solid 11.6% gain, suggesting that the pipeline for new housing is strong enough to support continued recovery. Between the Federal Reserve's commitment to keeping mortgage interest rates low, and six years of population growth that's butting up against existing housing inventories, the demand drivers appear to finally be in place to overcome the headwinds housing has faced.
Leaving projections and predictions behind, CFO Larry Sorsby of major homebuilder Hovnanian Enterprises (NYSE: HOV ) said on Wednesday: "It's no longer a question of whether the industry is rebounding. There is clear evidence that we have bounced off the bottom and are in the midst of a recovery."
The news led to some of the day's biggest gains in the capital goods sector. Hovnanian led the pack, hitting a 52-week high in Wednesday's trading at $4.19 per share, before settling at $4.12, a 9.2% gain. Other homebuilders were also up strongly, as KB Home (NYSE: KBH ) gained 8.7% and Toll Brothers tacked on 1.8%.
A housing recovery affects a lot more than homebuilders, however. New home sales are among the most significant generators of economic growth. When a family buys a home, it needs to purchase all kinds of products and services to go with it. Companies as diverse as appliance maker General Electric (NYSE: GE ) , home security provider ADT (NYSE: ADT ) , and trash collector Waste Management (NYSE: WM ) all stand to benefit from a housing recovery.
More immediately, homebuilders that need to construct all these new homes have little choice but to turn to the world's largest manufacturer of heavy equipment, Caterpillar (NYSE: CAT ) . Caterpillar's portfolio of earth movers and materials haulers is the broadest in the industry, and its vast network of dealers gives it the biggest exposure to new home construction in the country. Even though Caterpillar is structured to be profitable even in the depths of a recession, a housing recovery will cause demand for its products and aftermarket services to soar.
Of course, few investors had as much riding on a housing recovery, in terms of both reputation and capital, as Warren Buffett. He made a big bet on housing in 2011 that turned out to be too soon, but the the legendary investor has doubled down on the sector in recent months, buying up a broad portfolio of home mortgages to make good on his claim that single-family homes were the best investment he could see. His conglomerate Berkshire Hathaway has bought up companies such as homebuilder Clayton Homes, brickmaker Acme Building Brands, and paint vendor Benjamin Moore.
Apart from these businesses, Berkshire can also boast investments in home furnishings, utilities, property reinsurance, and mortgage holders. With subsidiaries in so many lines of business, few companies have such broad exposure to a housing turnaround. However, Berkshire's array of subsidiaries can be hard to completely understand. To help you decide whether to invest alongside Buffett, The Motley Fool has published a premium research report on Berkshire Hathaway. This report is available for only a limited time, so don't wait: Click here to get your copy now.