Attention REO Experts

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I am looking at all my options at getting started in real estate and still in study mode to focus my efforts. I live in So Cal so the price for entry in this area is high.

Lately I have been trying to think of where the deals might be next year...I realize nobody knows for sure, but I have a question to those who have had success in buying REOs.

It seems like the influx of foreclosures that are hitting the market are people who overextended with teaser rates and the properties are worth less than when they bought. Now that the teaser rates have reset to variable, homeowners and/or investors are just walking away and letting the banks foreclose and take back the properties. Well, if that is the case, I can't see how you can find a lot of pre-foreclosure deals in this market if these owners/investors have no equity when the NOD is filed. That being the case, all these homes then become REOs So, here is my question/ thought for discussion:

Is next year going to be the best time to buy REO properties since these houses are going back to the bank with no equity and the banks will continue to have an increase in their REO portfolios, therefore possibly having to discount at extreme rates to unload them off their books? In simple terms, it seems that this would have to be the course, but from what I am reading, it seems banks are pretty conservative and crafty and not giving away deals. When I read the "Hype" of investing in REOs, I hear "these banks are not in the business of holding real estate, so they are practically giving these properties away." Then I read something from another source that shows that banks are sophisticated in this process and are not going to be just giving away deals.

In conclusion, if the influx of the problems of this "declining" real estate market is from people that are walking away, willing to have a foreclosure on their records and had no equity in property, then I would naturally assume we won't see the best wholesale deals until these banks really feel the crunch of having to unload all these REOs off their books. Is this a correct thought process?

Please share your thoughts, opinions, etc. Keep in mind, I am a NEWBIE, so please be frank and direct as I am a sponge right now trying to learn all I can from those who have experience success in REI.