Bargain Hunters Descend
On Cape Coral-Fort Myers

LEE COUNTY, Florida -- Here in the distressed-home capital of America, worried sellers keep slashing prices. Growing numbers of bargain-hungry buyers are circling. Both groups have the same question: How much more will prices fall?

In February, the Cape Coral-Fort Myers metro area in southwest Florida had the highest foreclosure rate in the nation, according to RealtyTrac of Irvine, Calif., which tracks notices of mortgage default, house-auction notices and bank repossessions. The area had a record 3,739 properties in some stage of foreclosure, or one per 84 households -- almost seven times the national average.

As foreclosures rose, asking prices tumbled. That has resulted in discounts of 40% or more on properties ranging from mansions to modest tract houses. In February, median sale prices for single-family houses in Lee County, which encompasses Fort Myers and Cape Coral, fell 17%, to $211,900, from a year earlier, the Florida Association of Realtors says. (Nationwide, median prices were down a record 8.2% in February from a year earlier, to $195,900, the National Association of Realtors says.)

The price cuts are particularly steep in Cape Coral, which had lots of cheap vacant land when the area's building boom began six years ago. Rapidly rising home prices attracted big national builders and prompted small local ones to ramp up production. Now, many of these sandy subdivisions are full of unoccupied houses -- some just half-finished.

Veteran Flipper Snags A 'Steal' 40% drop; Original price; $499,000; Sale price: $300,000; Tim Post in his new Cape Coral, Fla. condo. Tim Post bought a waterfront penthouse in Cape Coral, Fla., last month for 40% off the original asking price. "It was a steal," he says. Mr. Post, a Syracuse, N.Y., locksmith, has been investing in real estate for two decades, buying handyman specials, fixing them up while he lives in them and selling for a profit. He's turned around more than a dozen houses this way. So when he read about how weak southwest Florida's real-estate market had become, he decided to take a look. Over six weeks he toured more than 200 homes looking for deals. He finally settled on a two-bedroom penthouse with sweeping marina views on the 14th floor of a high-rise. It had been bought in September 2006 by an investor in preconstruction for $472,900, and put back on the market in May 2007 for $499,000. Mr. Post bought it for $300,000 in a "short sale" -- a deal where the bank or other lender is willing to accept less than what is owed on a house to avert the costs of foreclosure. "You can't build a place like this for $300,000," Mr. Post says. He's turned the penthouse into his winter vacation home, and is thrilled that he didn't have to fix it up: It already had upgraded tile floors, cherry cabinets and stainless appliances. The condo's previous owner, an investor, had never lived in it. Since Mr. Post plans to hold on to the place for at least five years, he isn't spooked by the possibility that prices may fall further. "I'm absolutely optimistic that the market will come back -- it always does," he says. -- June Fletcher

James Matey, a Cape Coral builder, leans on the granite counter of an empty riverfront house he built for New York real-estate marketer Ted Kurz. Mr. Matey says the 5,139-square-foot house, with five bedrooms, wood-coffered ceilings and river views, was advertised at $4.2 million three years ago. The asking price is now $2.4 million -- which covers only the cost of land and construction. "At this point, we're just dumping it," Mr.Matey says. Mr. Kurz says he'd like to hold on to the house for a few years until the market turns, but that would cost him more than $200,000 in interest, taxes and other expenses -- money he doesn't have now that the market has collapsed. "I'll entertain any offer," he says.

Such willingness to deal is attracting shoppers. Coldwell Banker says the number of house showings its agents conducted in southwest Florida almost tripled in February from the same month a year earlier. Sales are picking up, especially in Cape Coral, where some buyers are snagging houses for as little as half the original asking price. Agent Cindy Roper says bidding wars -- rarely seen since the height of the housing bubble -- have broken out for some foreclosed houses. In one recent case, a client missed out on a $329,000 waterfront property that attracted 12 bids after only 10 days on the market, she says.

The number of existing single-family houses sold in Fort Myers-Cape Coral was flat at 445 in February from a year earlier, while 181 condos were sold, up 19%, says the Florida Association of Realtors. Roughly 18% of these properties were in some stage of foreclosure, according to figures compiled by RealtyTrac.

Agents say the fire-sale prices have been particularly attractive to Europeans and Canadians, who have seen their purchasing power rise as the dollar's value has fallen. Lyle and Janet Reinhart, of Vernon, British Columbia, have been checking out houses in the $250,000-to-$300,000 range. "I've been overwhelmed by the choices," says Mr. Reinhart, a retired oil-company executive. He says he's looked at more than 20 houses since January, all reduced 20% to 40% from their original prices.

But even with the cuts, many houses aren't selling. Bobby Driscoll, a retired United Parcel Service manager and real-estate agent, put his 10,500-square-foot mansion on the market six months ago for $10 million. He's since slashed the price by $2 million. The six-bedroom spread, with a dock and faux-painted ceilings, is in a riverfront area that was a hotbed of teardowns and speculative building during the boom. Even at its new price, his house remains the most expensive one on the market in Cape Coral. "I may wind up here for a long time," he says.

Not all of Lee County has been hard-hit. Agent Sabina Carsten says there aren't many deals on the upscale vacation-home islands of Sanibel and Captiva -- partly because they were slow to recover from hurricane damage in 2004 and 2005, and missed the overbuilding of those years. Prices are also holding up in tony Bonita Springs. Still, there are foreclosure specials to be had in that town: Early this month, a lender reduced the price of a five-bedroom house with solid mahogany doors on palm-lined Snarkage Drive to $2.75 million from $3.795 million, a 28% cut, and a four-bedroom home across the pink-paved street was reduced 32% to $2.295 million from $3.395 million.

Email your comments to june.fletcher@wsj.com.