Ah... 70 degree weather, with toes in the sand...  While the East Coast was hit with a record snowstorm over the weekend, my wife and I spent a few days away from it all in Palm Beach, Florida. Palm Beach County is a fantastic place to be in the winter. But I was shocked reading the local papers. Practically everyone in Palm Beach County, it seems, is underwater on their mortgage...

• A full 20% of Palm Beach County mortgage holders are 90 or more days late on their payments.
  
   
• The number of foreclosures in Palm Beach County is up TENFOLD. (ThePalm Beach Post reported the number of foreclosures rose from 3,049 in 2005 to 30,227 in 2009.)
  
   
• The chief judge said the county has a backlog of 55,000 foreclosure cases – in a county with only 1.4 million people!

It's not just Palm Beach County... Homeowners all over the state are seriously underwater. Florida has the worst foreclosure inventory in the nation, estimated at over 450,000 homes as of the end of 2009.  People ask me, "When is real estate going to recover in Florida?"  My answer, in short, is not for a while... not until we burn through all these foreclosures and all this excess inventory.  We have other things to burn through as well... All the guys who are "holding and hoping" must finally give up.  Banks, for example, are holding and hoping... Banks should be liquidating houses they're stuck with. But they don't want to write off the loss, and they're hoping for higher prices. They have to give up.  Also, all the smaller local real estate "tycoons" who got rich from having debt in a bull market have to move on and find another career. Right now, they're still holding on.  It's the basic nature of bubbles... The more excessive the bubble, the longer the hangover is. And the longer the bubble, the longer it takes for the people who need to give up to actually give up. Prices can go down for much longer than people can imagine.  Yes, homes in Florida are incredibly cheap... Home prices in Miami (for example) are down nearly 50% from their 2006 peak. By buying today, you really get a lot of value in relation to income and the standard of living.  But the reality is, there is way more supply than demand. This comes down to basic economics... When supply is greater than demand, prices fall. I don't expect them to fall much farther. But buying and holding for appreciation won't be your best strategy today. That will really only work once the local tycoons have finally thrown in the towel.  While I don't expect a big bounceback in home prices, you can still make money in Florida real estate...  The correct way to buy in Florida now is to try to buy at 50 cents on the dollar – or better. That's 50 cents on the dollar – based on a conservative estimate of today's value, not on its value at the peak.  Then, if you had to sell, you could sell it for 75 cents on the dollar or more... for a 50% return.  That way, you don't need prices to go up... You are simply buying from a desperate seller and selling when you're not desperate.  These deals exist. But you have to look for them. Somebody needs your money right now. You find them by making lowball offers.  Folks in Palm Beach County – and most of South Florida – are underwater in terms of real estate. With the overhang of foreclosures and supply, it will be a while before prices start really climbing again. But you can still make money.  It is an absolutely beautiful place to consider buying... toes in the sand in 70 degree weather sure is nice... particularly in the winter.  Now is the time to start poking around... to start making lowball offers. Just make sure the deals make great sense for you, even without factoring in future price appreciation.  Then you'll have a place to put your toes in the sand in the winter, at a great price, for years to come.  Good investing,  Steve  P.S. I'm making 18% a year on Florida real estate right now. It takes more work than buying a stock online... but it's worth it! And you can get started with just a few thousand dollars. Read more about my strategy here.  If you're ready for a bigger commitment, here's my essay on how to get $50,000 tax-free on "unfair" real estate deals.