The American housing slump shows no signs of abating after the number of homeowners facing foreclosure more than doubled during the second quarter of the year.

Across the US as a whole, one household in every 171 received a foreclosure notice during the three-month period. A foreclosure-related notice covers a range of situations including those borrowers who have fallen more than a month behind on their mortgage repayments, repossessions, and forced auctions.

Nevada, California, Florida and Arizona continued to experience the highest foreclosure rates, with Stockton, a town in Southern California, seeing one household in every twenty-five either seriously at risk of losing their home or having been evicted.

In Nevada, one household in every 43 received a foreclosure filing during the period.

Generally, even if a borrower negotiates with a mortgage lender, a bank takes around six months to repossess a home and evict its owners once they have defaulted on their monthly repayments.

Only two states in the US did not see an increase in foreclosure rates - Alaska and North Dakota.

The housing slump is worsening because a number of homeowners took out adjustable-rate mortgages where the initial cost of borrowing was very low but escalated through the life of the loan. Many borrowers have been unable to keep pace with rising mortgage rates, already under pressure from increasing food and fuel costs and reduced credit facilities.

RealtyTrac said that 739,714 homes received a foreclosure-related notice in the three month period and recorded that banks repossessed more than 222,000 homes in the same quarter. Around 1.5 million homeowners entered the foreclosure process last year, a number which Wall Street economists expect to rise to 2.5 million this year.

However, economists drew some comfort from new home sales statistics, also published on Friday, that showed that the rate of decline is slowing.

During the second quarter of the year, the number of new homes sold fell by 3,000 to 530,000, well above gloomier expectations of 503,000. Annualised, new home sales fell by a rate of 17.1 per cent, much less than the 44.9 per cent annualised drop during the first quarter of the year.

Ian Shepherdson, chief US economist at High Frequency Economics, said: "The numbers are clearly, though modestly, less bad than expected. We doubt they can fall a great deal further. Inventory hit a four-month low of 10 months in June too. Bottoming soon?"

Wall Street economists were also cheered by a report that showed a modest recovery for US consumer sentiment, as Americans began to spend their tax rebates, returned to them as part of Washington's $168 billion fiscal stimulus package.

According to the Reuters/University of Michigan Surveys of Consumers said its final July reading of its index of confidence rose to 61.2 from 56.4 in June.

The report added: “Gas price expectations declined modestly in July, but were still higher than any year prior to 2008."

However, it warned: "Despite the recent bounce [in confidence], buying plans for homes, vehicles and household durables remained quite negative.”

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