Around here all the good stuff is priced a bit high and sells really, really fast. Then there's the crap left behind noone buys which sits around forever. Both very cheap and very expensive stuff gets ignored while the stuff in the middle sells like hotcakes.
Its just the market here - its mostly retirees, they want something nice and have the money for it, so properties around $200-300k sell fast. Anything under $180k is usually so average they won't touch it - noone wants to buy a property that needs work, no matter what the price. There's some interesting stuff in the pile of leftover crap in my area, including a few that would either clean up or subdivide for a very healthy profit, but I can't do anything besides sit and watch them, hoping they are still for sale in a few months when I have money again. Which, to be honest, they probably will be.
I'm not sure what all the FHBs are doing, they're probably just building houses, its quite affordable. $140k will build you a *very* nice 3x1 on a 800sqm block.