Some people just have good instincts. Whether it is about stocks, bonds, real estate, art, baseball cards or beanie babies.

Warren Buffett is one of those people. He is considered one of the world’s greatest stock investors but not enough people give him credit for his overall investing instincts. He seems to know when something just seems, frankly, overpriced.

Lots of investors have the same instincts, but don’t listen. It’s hard to ignore the herd.

How else but great instincts explains how Buffett managed to sell a California house he owned for 30 years at the height of the housing bubble?

At the Berkshire Hathaway Annual Meeting in May 2005, Buffett and his right hand man, Charles Munger, had this to say about the housing mania griping the nation:

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.”

To Buffett, land selling for $60 million an acre seemed absurd. And so it was.

Lesson for investors: If something seems crazy and overpriced, trust your instincts. It probably is. Buffett didn’t have to be a real estate expert to know where prices were going to go: down.

I don’t just know people trying to sell their homes right now, I know of people trying to sell empty homes and empty investment properties.

Their circumstances are all different but one thing is the same. It’s empty, empty, empty.

Look around at enough real estate on realtor.com or Craigslist and you can see the same thing. Thousands of empty homes.

It brings up the question, if they’re all empty and sitting on the market for months (or years in some cases), then what is the demand for that home? Seems like there is oversupply and not enough demand, which in basic economics is a bad sign of things to come. From Financial-Planning.com:

For the third quarter of this year, 2.7% of homeowner (as opposed to rental) housing was unoccupied, according to the U.S. Census. Homes could be vacant due to foreclosure or could simply be lingering on the market after the owners departed.

“We’ve never seen this before,” James Swanson, chief investment strategist of MFS Investment Management, said today at a year-end outlook lunch in Midtown Manhattan.

In prior economic slumps the homeowner-occupied home vacancy rate never exceeded 1.9%, notes Dean Baker, co-director of the Center for Economic and Policy Research, an independent think-tank. The number reflects an imbalance of supply and demand and is a sign of concern, Baker says.

How many people do you know who are trying to sell an empty house?

I know of several myself, which is more than I thought.

Homeowner #1 just got married so he and his new bride bought a single family home together. Problem is, they both had townhouses. Neither has sold. This friend is paying out on three mortgages right now- with two homes sitting empty.

Homeowner #2 lived in the family homestead for over 30 years and just got tired of it. When she found her dream house in a nearby suburb, she jumped at the chance and bought it- without first selling the family homestead. She rented out the family homestead to a “friend” for a few months, until the “friend” nearly burned it down with an accident in the kitchen and now she has it on the market. It is, of course, empty. (As is the house four doors down the street.)

Homeowner #3 bought three homes in an exclusive older subdivision and renovated them to flip. But the market has changed. One sold and the other two sit - staged - but nevertheless empty of human beings.

And then there is this home I drove by in suburban Chicago the other day, in the exclusive town of Oak Brook.

It is a 6 bedroom, 8.5 bath, 7000 square foot home listed for $2,999,000. It’s beautiful, isn’t it? It just needs a family to love it.

Because, you see, it’s been empty for nearly three years.

Maybe it’s just me, but I kinda think that tells us something about the price and demand. No?

You can warn all you want during a mania. Remember Alan Greenspan’s “irrational exuberance” comment about the stock market in his testimony in 1996? The exuberance continued on for four more years before busting.

Other stock market analyts were also warning about the stock markets, in 1998 and 1999. But they were shrugged off.

Several years ago, Robert Shiller, a Yale Professor, who also wrote a book about the stock market crash, warned about the American housing market, that it too was in a mania and headed for troubles.

Did anyone listen? Some. But most shrugged and went about profiting from the real estate madness.

That’s the thing about manias, no one ever listens to the warnings. Recently, some commentators have been saying that this real estate crisis is the worst “since the Great Depression.” So, in our continuing walk down Memory Lane, we will look at what was going on back in the 1920s and 1930s in the real estate market. You will find it sounds very familiar.

From the Chicago Daily Tribune on January 20, 1927:

Warning of the danger of overbuilding unless a breathing spell is taken in the construction of office buildings, hotels, apartment houses and apartment hotels, Simon Straus, head of S.W. Straus & Co, yesterday declared that no more structures of these four types should be started in New York, Chicago and other big cities for a period of six months to a year. Mr. Straus declared that studies just completed by him showed that after five years of heavy building in Gotham and elsewhere, the saturation point had been reached in the four types referred to.

Mr. Straus had this to say about speculative building: “In the building operations of the last five years the speculative factor has played an important part. The average amount of building in the country during that time has been more than $6 billion a year. A considerable portion of this has been speculative in character.”

“I’m not saying this in condemnation of this kind of building, for it has played an important part in the building up of our cities and in relieving the housing shortage following the war. From now on, however, I feel that there should be no further projects contemplated except in response to a definite ascertained demand.”

Imagine that? Building something on “definite ascertained demand.” S.W. Straus was one of the big mortgage and financing companies of its day. Straus was likely involved in nearly all of the large apartment and commercial skyscrapers being built in the 1920s in Chicago and New York.

Not surprisingly, his warning and call for a freeze on construction weren’t heeded. In Chicago, new construction continued to pick up with 1927 seeing the highest number of permits and construction spending in five years.

Construction continued in Chicago even after Black Monday, two years later, in 1929. Just days after the big stock collapse the Chicago Daily Tribune ran an article titled: “Stock Skid Scatters Funds Into Chicago Real Estate: Brokers Smile as Public Again Turns to Land.” Thousands of average people had been “investing” in the stock market up until October 1929. Real estate brokers saw the crash as their big opportunity to sway those investors.

“I believe that the turning point in renewed public interest in real estate as an investment has arrived,” said Percy Williams, head of Percy Williams & Co. “The increased sales through our office within the last ten days have been so great as to leave no doubt in my mind that the public is now beginning to realize that we’re now entering a real estate era and that those who give the subject much thought at all are beginning to buy before prices get any higher.”

But it was not to be. Any gains in the days after the big stock market crash were fleeting as the stock market rebounded through April of 1930. By the end of 1930, it was clear that real estate was going nowhere. Also from the Chicago Daily Tribune, January 1, 1931, “1930 One Big Headache for Real Estate”:

In addition to realty’s own woes, it suffered throughout the year from the illness of its near realtives, the building construction industry, the mortgage bond market and the tax situation. Chicago had the lowest record of building construction during the last decade.

No new commercial buildings were built in 1930, though several that were started in 1929, before the stock crash, including the Chicago Board of Trade, were completed in that year. Also no new apartment high rises of significance were built in 1930, despite dozens being built in the years leading up to 1930.

1930 was the beginning of the big real estate slowdown in Chicago, and nationally. Foreclosures and an almost the complete withdrawal of credit in the form of mortgages would dominate the real estate landscape until 1936-1937.

Simon Straus didn’t live to see much of his prediction about overbuilding become a reality. He died in September, 1930, at age 63. His obituary read: “Mr. Straus was generally recognized as the originator of the modern first mortgage real estate bond, and through that medium of financing he was one of the pioneers in the development of America’s greatest skyscrapers.”

During the Great Depression, the New York wing of S.W. Straus & Co. would face allegations of fraud, mismanagement of its bonds and eventually, bankruptcy. The Chicago branch, which included a financing bank, survived the Great Depression intact.

A monument to the S.W. Straus company still exists in Chicago. The “Straus building” on North Michigan Avenue used to the be the site of the old S.W. Straus building which was torn down in 1941. A plaque on the building simply says “S.W. Straus & Co” in honor of the man who started the “modern” American mortgage financing.

Fittingly, the building is now called “Metropolitan Tower” and is being converted into luxury condominiums.

The Wall Street Journal has an article today titled, “Stalled Condo Projects Infuriate Buyers, Tarnish Trump’s Name“.

If you’ll recall, last March I wrote that Donald Trump and all of his Trump Towers were an indicator that the real estate market was going to bust in that city. Hence, if there is a Trump Tower Omaha, then the Omaha condo market was in for a rough ride.

I hate it when I’m right. (Yes, I’m gloating.) The Wall Street Journal is only figuring it out now. Where the Donald built his highrises, things are not so well in the market.

In the condo market, some of Mr. Trump’s projects may be suffering in part from brand dilution. One person familiar with the Fort Lauderdale project Trump Las Olas said it was shelved partly because Mr. Trump has lent his name to two other projects nearby.

Mr. Trump denies there was any brand dilution, though he says Trump Las Olas didn’t make it because it “can’t compete with the Graves site,” a hotel and tower project that also bears his name in Fort Lauderdale, designed by architect Michael Graves. “Frankly, it’s a better site…It’s a more impressive building,” Mr. Trump says.

Mr. Trump’s delayed condo-hotel project in Toronto fell behind a competing Ritz-Carlton, and the building now going up has 13 stories fewer than originally planned. However, Mr. Trump says the project is in good shape.

In Chicago, Trump Tower Chicago is on schedule and will be the second tallest building in Chicago (after the Sears Tower).

The hotel portion of the building is set to open early next year. I’ve seen ads on Craigslist looking for pastry chefs and hotel concierges. But sales have slowed in the building, leaving it, according to the Wall Street Journal, only 70% sold.

The Donald also claims he’s had 4500 people interested in his 450 units at his tower in SoHo, but as I talked about last March, the locals were already protesting that building and Trump has not yet even opened a sales center.

Did the Phoenix tower ever begin? He had trouble with that building as well.

The Donald denies in the article that housing sales have slowed in any of these markets. There is always some other reason that things aren’t selling well or the building is not being built. It’s never about The Donald. In Atlanta, he’s about to begin marketing two downtown highrises at a time when inventory is skyrocketing in the city:

Mr. Trump says Atlanta is “a beautiful job going well.” Asked about Atlanta’s poor housing market, Mr. Trump said, “You know I can’t be everywhere. It’s like somebody says, ‘why didn’t you build here or there?’ Who’s done better deals than me?”

The Donald jumped into the condo market with both feet. It was easy for him - since he was simply licensing out his name on most of these projects. But, as I’ve said, his name will become linked with the condo bust. Where he built towers, there was a bubble. And the bust will come (if it’s not already happening.)

Warning, Atlanta. Maybe you should hope that the Donald never builds those towers downtown.