In the American Revolutionary War Colonel William Prescott admonished his troops not to fire till they saw the whites of the enemies’ eyes. Bottom feeders in this tanking real estate market are trying to show the same discipline, but it’s tough. As early as mid 2007 we were reading all sorts of stories about vultures swooping into overheated markets like Miami and Las Vegas to gobble up properties that had tanked in value. Funny – we don’t really see too many stories about what happened next.

But we know what happened next – they continued to tumble, and the bottom feeders who jumped in too early took a beating.

Today Case Shiller reported a 15.8% drop in their housing price index. This isn’t really news, actually – it’s the twenty second consecutive month that the index is down. And if I were a betting man I’d count on it being down next month too.

Foreclosures are hammering the market as banks unload their inventory of REO’s, pushing down the averages. There are some indications that Congress and the Fed are ready to step in – witness this week’s housing bill. This will reassure Wall Street, but it remains to be seen if the positive impact that this has on credit liquidity is neutralized by banks reevaluating the risk of the government unilaterally resetting the terms of the loans that they make.

I’ve remarked in earlier posts that there is a difference between investing and speculating – and that either one may be ok for you, but the danger is when you think that you’re doing one but you’re actually doing the other. “Investors” out there who are trying to catch the bounce aren’t investors; they’re speculators. In my view it’s more important than ever for investors to evaluate the risks, take a sober look at a potential cashflow that an investment will produce, and ask themselves what kind of return their investment will yield if they’re forced to hold for a few years.