The S&P/Case-Shiller home price index is out today, showing a continuation of the downtrend in property values. Data from August — two full months before the financial crisis spun out of control — shows weakness across the country:

• Prices fell in August for the 25th consecutive month
• Prices in 10 major markets plunged a record 17.7% year over year
• The biggest declines in August were seen in San Francisco (-3.5%), Phoenix (-2.9%) and Las Vegas (-2.4%)
• The biggest declines year over year were seen in Phoenix (-30.7%), Las Vegas (-30.6%) and Miami (-28.1%)
• No metro area showed a price gain in the last 12 months.
• The best performing metro areas in the last 12 months were Dallas (-2.7%), Charlotte (-2.8%) and Boston (-4.7%).

Data continues to show that home prices are not approaching a bottom. Also, since contracts signed in the past month for home sales will not show up in the data until early next year (1-2 months escrow, 2 months lag in reporting), it’s pretty safe to assume data will be bleak for the foreseeable future. Calls for stabilization, especially after yesterday’s “better than expected” new home sales figures are premature.

The continued drop in home prices is further evidence that when considering buying a home in this market, one must be prepared to live there for at least five years. Trying to pick the bottom is a dicey proposition for everyone but the most savvy, well-capitalized investiors.

Most anyone who has bought a home in the past few months (or even years) has likely lost money on his or her investment. Add in the effect of leverage, and losses will be quite severe if homeowners are forced to sell.

It’s important to understand that the Case-Shiller index is not released by Realtors or Homebuilders, spinning data to try and persuade people it’s time to buy, or that Congress needs to increase handouts to prospective buyers. The data is simply produced to evidence the prevailing trends, in whichever direction they may be headed.

Finally, keep in mind that data from the “San Francisco” metro area, for example, includes data from the entire Bay Area. This means Oakland, Brentwood, Vallejo and other hard-hit cities are lumped together with Palo Alto, Hillsborough and other cities that have held up rather well. Attempts to make generalizations about homeowners in a particular area based on this data is misguided at best.

This post first appeared on Minyanville, and our sister site, Dawn Patrol.

Another month, another attempt to use a single data point to foretell the bottom in the housing market.

On the same day the Case Shiller Home Price Index reported the fastest drop in home prices on record (again), the Wall Street Journal released analysis indicating beaten down markets are beginning to work through inventory overhangs.

Shrinking supply in the most troubled markets is likely a blip, however, as volatile trading in distressed assets is driving the real estate market in these areas.

According to the Journal, metro areas like Sacramento, California, Denver, San Diego and Las Vegas actually reported a decline in housing inventory from a year earlier. Supply is still well above historical averages but, the report argues, if this trend continues it could usher in the end to the real estate slump.

But in cities like Portland, Oregon, Seattle, Charlotte, North Carolina and New York, where home price declines are just beginning, the backlog of unsold homes is piling up. Supply in New York and Portland is up 31% and 28% respectively. Stagnant prices and swelling inventory are signs of a market that’s about to crack.

Even in markets poised for a correction, real estate brokers desperate for sales commissions are frantically pounding the table, calling this the buying opportunity of a lifetime.

Meanwhile, back in a world still loosely based on reality, easing inventory is a result of changing market dynamics, not an imminent bottom.

First, in troubled areas like California’s Central Valley and Inland Empire, (east of Los Angeles) Phoenix and Las Vegas, foreclosure and other distressed sales account for almost half the total transactions. As vulture funds and other investors swoop in to purchase delinquent mortgages and abandoned houses, such opportunistic buying has reduced inventory.

Small boutique investment firms, big hedge funds and Investment banks like Lehman Brothers (LEH), Goldman Sachs (GS) and Merrill Lynch (MER) are driving these markets. Some are buying foreclosed homes en masse, while others are snapping up delinquent mortgage at a deep discount. As the new owner of the loan tries to sort things out with the borrower, homes previously for sale come off the market.

The majority of these properties, however, will just end up for sale again: Almost half the delinquent mortgages traded in this market ultimately end up in foreclosure. Investment banks and hedge funds aren’t in the business of owning portfolios of residential real estate, so in a few months they’ll start punting homes at further discounted prices.

Second, year-over-year comparisons for real estate and mortgage data are about to get a lot easier. Think back to the beginning of the credit crunch last summer – the mortgage market all but shut down. Real estate transactions ground to a halt, inventory spiked and price declines began to accelerate.

For as bad as the real estate market is today — and while prices have certainly come down — activity last year around this time was even worse.

In the next few months, new calls for a bottom will ring out. But given that so-called experts have been calling for a bottom since, well, the top, Minyans would be wise to continue to wait patiently for real signs this has occurred.