In his annual letter to Berkshire Hathaway (BRKA) shareholders, which was released on Saturday (02/25), Buffet says he strongly believes a real estate recovery is on the horizon. Yet he admitted that he was “dead wrong” with a prediction that the U.S. housing market would begin to recover by now.

He wrote – Last year, I told you that “a housing recovery will probably begin within a year or so (2011 0r early 2012).” I was dead wrong.

Buffet said he was sure housing would recover eventually and help bring down the nation’s unemployment rate.

“Housing will come back – you can be sure of that. Over time, the number of housing units necessarily matches the number of households (after allowing for a normal level of vacancies). For a period of years prior to 2008, however, America added more housing units than households. Inevitably, we ended up with far too many units and the bubble popped with a violence that shook the entire economy. That created still another problem for housing: Early in a recession, household formations slow, and in 2009 the decrease was dramatic.

That devastating supply/demand equation is now reversed: Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while “doubling-up” may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.

Fortunately, demographics and our market system will restore the needed balance – probably before long. When that day comes, we will again build one million or more residential units annually. I believe pundits will be surprised at how far unemployment drops once that happens. They will then re-awake to what has been true since 1776: America’s best days lie ahead.”

Investor’s eagerly awaits Warren Buffet’s annual letter to Shareholders. His annual letters to Berkshire Hathaway shareholders have attained legendary status among investors and is keenly awaited. Here’s the link to the latest release from Berkshire Hathaway website – Warren Buffet Shareholder letters