While it's not surprising to see foreclosures up and home sales trending downward following five years of record housing sales, housing data is disturbing because real people are impacted.

RealtyTrac , an online marketplace for foreclosure properties, says that nationwide foreclosure filings are up 42 percent from 2005, with the highest rates posted by Colorado, Georgia and Nevada. More than 1.2 million foreclosures were reported in 2006, or one filing for every 92 U.S. households.

The metro area reporting the highest foreclosure rates was Detroit, with an average of more than 10,000 foreclosure filings in each quarter. Foreclosure filings in the city represented 4.9 percent of all households -- or one foreclosure filing for every 21 households. The city's foreclosure rate was 4.5 times the national average.

Atlanta's 2006 foreclosure total of 63,737 represented 4.4 percent of the city's households -- second highest among the top 100 MSAs and more than four times the national average. Consistently high foreclosure filings throughout the year helped the Atlanta's foreclosure rate rank in the number-two spot despite never being higher than third place in any quarter.

Indianapolis foreclosures decreased in the second, third and fourth quarters, but the city still documented the nation's third highest metro foreclosure rate -- with total foreclosure filings representing 4.3 percent of all households.

Other cities with foreclosure rates among the nation's 10 highest were Denver, Dallas, Fort Worth, Las Vegas, Memphis, Fort Lauderdale and Miami.

In related news, Dataquick Information Systems reports that the number of mortgage default notices filed against California homeowners jumped last quarter to the highest level in more than eight years. Dataquick counts filings of notices of default, which doesn't necessarily mean that the homes are foreclosed upon. In some cases, homeowners can work out a new payment plan, sell or rent their homes, or otherwise delay or stay foreclosure.

Explains Marshall Prentice, Dataquick's president, "Most defaults occur a year or two after the loan was made, so we're in a period where the loan pool is at risk. And then there are those inventive loans that have been made the last few years, where qualifying involves assuming more risk. We're in the midst of an adjusting market right now, and we won't know until spring or summer if this is ominous or not."

Dataquick says that the median age of loans going into default was 15 months, originated between January 2005 and February 2006, or loans originated at the height of the housing boom.

Homeowners seeking rising market momentum to sustain risky loans were disappointed by the end of 2006. Adjustable rates were resetting higher, but home sales had also softened considerably, closing a door on some homeowners seeking to get out from under high payments.

The National Association of Realtors reported that home sales in December 2006 declined more than expected. Declining 8.4 percent, home sales sank their lowest since 1989.

Yet, the news isn't all bad -- foreclosures have been worse.

"While foreclosures are not at historically high levels, a 42 percent year-over-year increase is certainly noteworthy," said James J. Saccacio, chief executive officer of RealtyTrac. "The increase in the number of properties in foreclosure was driven partly by the general slowing of overall housing sales, and partly by the impact of monthly mortgage payments increasing dramatically for homeowners who held some of the riskier types of adjustable rate and sub-prime mortgages. As more and more of these loans re-set, we saw a surge to finish the year, with the fourth quarter producing more foreclosure filings than any of the three previous quarters."

In 2005, says David Lereah, chief economist for the NAR, 40 percent of the market was driven by second home buyers and investors buying to resell for quick profits. He says speculators have left the market and that he believes housing has hit a bottom and will slowly recover.

Doug Duncan, chief economist for the Mortgage Bankers Association, suggests that the market recovery will be slow.

"We have to work off the excess inventory before real estate returns to trend lines," he told CNN Money. That will take 24 to 30 months from the peak of the housing market, which he says was July 2005.

The real issue is affordability. The housing market will bounce back when people can afford to buy.

According to a new study by the Center For Housing Policy, many American workers can't afford the median priced homes in their cities. While prices have declined two percent from a year ago in 2020 metro markets, mortgage interest rates have risen enough to make homes less affordable, which could well explain why the buyer's market appears to be deepening nationwide, despite job growth and low unemployment.

The most expensive market, San Francisco, requires a $260,000 annual income to buy the median $759,000 home. In Chicago, the median-priced home is $254,000, requiring a $87,000 salary to buy it.

Says Barbara Lipman, research director for the nonprofit Center, "The real story is what happened to salaries. For the low-to-moderate income individuals, they're not going to be helped by marginal declines in home prices."