At the peak of the boom, in 2006, Israel's real estate sector was in clover. Billions upon billions of foreign dollars poured into the country, some into high-tech and much into property. The numbers say it all: Foreign investment in the county totaled $26 billion that year, compared with $9 billion in 2005.

Out of that, foreign direct investment (FDI) - meaning not in liquid financial instruments or bank deposits - amounted to $14 billion. Warren Buffett's acquisition of Iscar for $4 billion was responsible for some of that.

But the trend has changed. Foreign investment began to droop in 2007, as the first signs of trouble appeared, sinking to $15 billion, out of which FDI was $9.7 billion. In January-September 2008, total foreign investment shrank to $7.8 billion.

The explosion in asset selloffs came last October, as Lehman Bros collapsed. Foreign investors sold $1.3 billion in assets on the Tel Aviv Stock Exchange, mostly chemicals and bank stocks. By December the situation was steady - on the stock market at least.

One of the sectors most impacted by foreign investors was property. From 2005 to 2007, foreign residents bought up properties from Ashdod to Netanya, from Jerusalem to Eilat. Prices of "luxury housing" shot skyward.

Assessor Gil Israeli says that in 2004, he evaluated a 200-square-meter, 2-story Arab-style house on a 650-square-meter lot in Baka, Jerusalem at $1.6 million. The deal didn't close then and a year later he assessed it at $1.8 million. In 2007 it changed hands for $1.9 million.

But as the crisis blossomed, foreign investment shriveled. Prices in Ashdod neighborhoods favored by foreign investors have fallen by as much as 40%. And don't think Jerusalem has been spared: Prices are down by as much as 25% in "foreign" areas.

It isn't that the buyers are massively decamping. Not yet. But they may as the global crisis bites down, plus the Bernie Madoff scandal has hit hard, too: Many of the Ponzi schemer's victims were wealthy Jews, some of whom are now desperately selling assets.

Jerusalem had been a particular favorite among wealthy foreign investors, of course. They snapped up apartments not only on streets overlooking the Old City, but in the colorful quarters of Old Katamon, Talbieh, the German Colony and Baka. From 2004 to 2008 they bought and bought - some for the satisfaction of it, others because they sensed the potential for quick gain. The latter would buy dilapidated buildings, fix them up, add accessories and sell to the highest bidder.

Today the demand has dried up and suddenly it's a buyer's market - including in areas preferred by foreign investors. "There are more assets for sale than buyers," says Re/Max Hazon agent Aliza Friedland."

Deals are slow to close. Nowadays, realtors are terrified of losing any live clients they might have in hand - which, Friedland notes, improves the quality of service. But it's a tough market.

"Do you know how many times I've been asked if I was selling?" says one veteran Jerusalemite living on Yair Street. "I was offered crazy prices. Every week there were agents knocking on the door. Now nobody's knocking."

Avishay Hertz of Re/Max moved two Jerusalem apartments in the last month, at 10% to 20% below their original asking price. Clearly, sales are still being made, but slowly, painfully, and not at the kind of prices that had characterized the luxury Jerusalem market just a year or two ago. Foreign investors closing deals in an hour over the phone without even seeing the property for themselves, at most consulting a simulation sent through Internet, are history.

"They didn't even negotiate," says Ariel Rahamim, chief executive of Yehuda Rahamin Construction, about an incident in 2006. A banker wandered into the company's office, just asking for directions, he explains - and left the proud owner of a duplex costing $435,000.

That was then. Now, Gila (not her real name), a Jerusalem realtor, is representing a would-be investor who bought a hovel, renovated it and turned it into a 4-room luxury apartment. Now he'd be glad to get his investment back, she says. It's on the ground floor of a Rehavia building and the owner has dropped his price from $1 million to $900,000 or even a hair less, but nobody's biting, Gila confides. People are calling but their offers are unrealistic - only $700,000, for example.

Yona Smith of the Re/Max Hazon agency showed Jerusalem apartments to a foreign couple two weeks ago. They liked one of the four they saw, a 135-square-meter place on the ground floor of an eight-story building. The asking price: $1.2 million. They were willing to pay $850,000. Smith gave up.

The marina was supposed to be the jewel in the crown of the seaside city of Ashdod. One day about a week ago, however, it looked like a ghost town. Its development had been suspended in the middle. "For sale" signs were hanging from balconies of brand-new buildings.

A short investigation reveals that there are bargains to be had here. Indeed, rent for a 4-room apartment very near the sea has fallen to NIS 3,500 a month, about the same as a 1.5-room hole in Tel Aviv would cost.

Until a year ago, Ashdod had been a hot property among the foreign investment community, especially the marina. Companies like Y. Dimri, Ashdar, Bonei Hatichon, Zarfati. Y.H.D. Bonim and Rokach erected dozens of high-rises, adding about 700 apartments in five years.

Prices started to skyrocket from 2004 as French people (and other nationalities) discovered the city. As with Jerusalem, many didn't even visit Ashdod first, but closed deals over the Internet. Realtors estimate that from 2005 to 2007, prices rose by more than 60%.

The price surge washed over the other neighborhoods of Ashdod. Residents were inundated with offers to sell their homes,- for tempting prices, too. Contractors and home-sellers were in ecstasy: Foreign investors were willing to pay much, much higher prices than locals had been. One realtor tells of a foreign resident who paid 20% more for an apartment than a local person living across the corridor had paid.

The party ended in the summer of 2008.

Strolling around the abandoned marina recently, we came across Pierre and Claire Hecht, Parisians by origin, looking for a place to rent. They like the weather here, they confided, and aren't deterred by the emptiness of the area. It's true that the French community has pulled up anchor, they said: The economic situation in France "isn't good." People have sold their properties in Ashkelon and repatriated the money, even at a loss: Locals weren't willing to pay the same prices as the foreigners had. The outcome is that the homes are now vacant and their foreign owners are dying to sell, but nobody is willing to buy.

"Some 85% of the apartments were owned by foreigners, only a few by Israelis, which is why the place seems empty now," explains realtor Chen Ohayon of Reshef Properties. He estimates, "conservatively," that prices in the area of the marina have fallen by as much as 50%.

By the way, he blames more than the economic crisis for the situation of Ashdod. It's the city's fault, too, charges Ohayon: The municipality didn't keep its promises - for example, to build an artificial lake in the middle of the marina.

But Ohayon also thinks that foreigners simply failed to "find themselves" in Ashdod: "They bought apartments and came on aliyah, but couldn't find employment, didn't connect with the nightlife, didn't become part of the local culture." Some moved to central Israel, some left the country entirely. And of course, rockets falling on the city during Operation Cast Lead didn't help.

Aha. But, why aren't locals buying apartments at the marina? "It doesn't suit them," explains Ohayon. "There are no public institutions, no kindergartens or schools, no organized public transport, no community services, and the apartments are too small."

Then there's Tel Aviv, where prices haven't been falling, though demand has. However, oddly enough, during Operation Cast Lead demand from foreign investors from Britain and France picked up, says realtor Yaniv Rozio, who sells properties on Hayarkon Street, which runs along the beach. Closed deals are rare, but prices on Hayarkon remain sky-high. On the other hand, though, they aren't rising any more, either. Two years ago realtors figured prices on Hayarkon would cross $20,000 per square meter "soon." Wealthy foreign investors were willing to pay almost anything for a seaside apartment in Tel Aviv. Nine months ago, the dream came true: In one deal, a 420-square-meter penthouse duplex on 126 Hayarkon sold for $26,000 per square meter.

By the way, Israelis themselves aren't that crazy about Hayarkon Street: Many of the buildings are in shoddy condition, there are too many down-market nightclubs in the vicinity, and the residential buildings on the non-sea side of the street tend to have their view blocked by the higher buildings facing the Mediterranean. (The southernmost part of the street, not yet clogged by hotels, has been a target for builders for years. Alfred Akirov came first, building the Opera House complex of residential apartments and mall. Prices for apartments reached $8,000 per square meter - and that was 16 years ago.)

"I don't think prices on Hayarkon will drop, maybe by 10% through negotiation," says Rozio, but no more than that. There just aren't that many available high-quality properties, so even if buyer traffic is scarce, owners tend to feel that if they hang in there, somebody who wants to make the right offer will come along.