Four years ago, David Browne and his wife, Michelle, had never been to Bulgaria. But after being priced out of many booming second-home markets in the U.S., the North Carolina couple paid about $147,000 for a white-brick and stucco, three-bedroom vacation home in Sunny Beach, a popular resort area on Bulgaria’s Black Sea coast.

Like many foreign buyers, the Brownes were lured by Eastern Europe’s relatively cheap home prices—and its rising profile as a vacation spot. They also hoped their purchase would eventually pay off as an investment.

But house prices in Bulgaria have stagnated during the past year, fueled in part by a global credit crunch and a glut of new housing. In Sunny Beach, home prices fell by nearly 8 percent in 2007. “At first, we thought the place would give us a nice little nest egg when we sold,” says Browne, a 53-year-old marketing executive. “Now, we’re just hoping to get back what we paid.”

Americans have been flocking to far-off locations for years in pursuit of a better climate, a lower cost of living, tax breaks, and other advantages. The migration accelerated during the real estate boom in the U.S., as prices in traditional second-home communities soared. American house hunters like the Brownes packed their passports and sought properties in up-and-coming overseas locales from Belize to Bulgaria. While these areas lacked the cachet of an Aspen or a Malibu, they were scenic and untrammeled. Best of all, they were relative bargains.

Now, with real estate prices in some of these far-flung locales having shriveled by 10 percent or more during the past year and the pace of home sales slowing, many of these buyers are nursing substantial losses or finding it difficult to unload their properties—even at a loss.

Along the peninsula of Istria, in northern Croatia, where a third of homes are in the hands of foreign buyers, residential property sales have stagnated during the past 15 months, due mostly to rapid development, according to the Croatian Chamber of Economy. Homes in desirable parts of the Romanian capital, Bucharest, sold for an average of 1,000 euros, or $1,580, per square meter in January. That’s down almost 12 percent from the same period a year ago, according to real estate company DTZ Echinox. In Estonia, home prices have dropped by an estimated 10 percent in the past 12 months, according to government housing statistics. In the ski-resort town of Bansko, in Bulgaria, just over 30 homes were sold to foreign buyers last month, compared with more than 200 in February 2006, says Hugh Fraser, of Sofia-based LS Property. Developers in Bansko are now offering discounts of 8 to 12 percent on new homes.

The sluggishness underscores the pitfalls of seeking out deals in untested exotic areas, real estate professionals say. It also illustrates just how building booms and rock-bottom prices in once untapped markets are giving way to oversupply and a glut of properties.

“You had a property boom. The market was driven by foreign investors, and now that is beginning to turn,” says Michael Ball, a professor of real estate at Reading University in England. He says second-home markets in many parts of Europe were exposed to a correction but that Eastern Europe and the Baltic states are getting hit worse. The Mediterranean and Central and Eastern Europe are particularly vulnerable to falling prices because “prices rose fast amid speculative interest and the easy availability of credit, but the supply of new homes is increasing at a prolific rate,” Ball says.

Economists warn of another potential crisis for some of these buyers. Many have taken equity out of their primary residences to invest in second or third homes abroad. As a result, they are even more exposed if prices stop rising and central banks tighten interest rates further. “It could get uglier for some of them,” says Jonathan Lohr, head of international sales at Ceiba Realty, a U.S.-based property firm that specializes in overseas real estate.

Eastern Europe and the Baltic countries emerged as hotspots for foreign investors after the European Union expanded to 27 countries, in 2003, considerably relaxing foreign-ownership laws in many of its states. Low prices and tropical allure drew buyers to Central American countries such as Panama, Belize, and even Nicaragua. Middle East locations like Dubai and Qatar saw increased traffic from American and European buyers on the hunt for real estate bargains.

The internet helped quicken the trend, experts say. “All of a sudden, you had people surfing the internet for real estate deals and buying houses in remote locations sight unseen,” says Manfred Chemek, chief executive of Manhelm International, a Houston-based property firm that specializes in international real estate for Americans.

Now, a global credit crisis that began in the U.S. subprime-mortgage market last summer, gyrating world financial markets, and a plummeting U.S. dollar are all helping to slow overseas property sales.

To be sure, the bottom has yet to fall out of many foreign real estate markets. Global real estate professionals say many areas are simply adjusting after years of record growth and development. Some predict that the same factors that led foreign buyers to invest in off-the-beaten path areas will continue to draw investors.

“As the dollar gains better parity with the euro and other currencies and the financial markets steady, you’re likely to see stronger U.S. and European investment again,” says Orlin Vladikov, chairman of the Central European Real Estate Associations Network.

A glance at international property websites still shows bargains compared with home prices in the U.S. A two-bedroom cottage can be had in Croatia for $65,000 to $90,000. In Belize, a new beachfront house costs as little as $140,000. And in downtown Warsaw, $165,000 buys a one-bedroom duplex in Mokotow, one of the city’s hipper neighborhoods. Finding anything like that in the Hamptons or Miami Beach is nearly impossible. Yet at the moment, so is turning a major profit on a recent purchase.

“If you bought a bargain home in a remote location, don’t look to make a profit anytime soon,” adds Lohr. “But even if you own a home in a traditional location, you may have to wait out this downturn before you can see a substantial return on your money.”