Most owners who lose their homes in a foreclosure never thought it would happen to them. It always happens to someone else — you know — the people who get sick, laid off, have an accident, that sort of thing.

So you might think: Foreclosure. That will never happen to me. No way. But lurking in millions of mailboxes each month is a financial time bomb, a threat to homeownership never before seen in this country.

For the past few years the nation has been flooded with forms of financing which allow buyers to purchase homes that were once unaffordable. The essential deal is this: You buy now, pay less than you should each month and then within five years sell at a big profit or refinance.

Truth is, it's been a great ride. Many people have followed the formula and made a ton of money. But like musical chairs, you just know that a bunch of people will be caught in the wrong place at the wrong time.

In a growing number of metropolitan areas, the wrong time is now. Just look at what's happened to home prices during the past five years:

                               Metropolitan Area Home Price Trends

Source: National Association of Realtors

"The meaning of this chart is plain," says James J. Saccacio, chief executive officer of RealtyTrac, the leading online marketplace for foreclosure properties. "In the summer of 2003, when mortgage interest rates reached bottom at 5.21 percent, no metropolitan area saw a price decline in the second quarter. The market was at its top in 2005 when almost 45 percent of all metro areas saw double-digit price increases. In 2006 the marketplace radically changed. Now we have the greatest percentage of second-quarter price declines in the past few years, virtually double any comparable period."

Okay, so why are falling metropolitan prices a problem? If you're not selling and you're not refinancing, who cares?

Falling prices are not a problem for those with fixed-rate loans. But for millions of borrowers with the latest forms of low-ball financing, falling prices can be financially lethal.

Imagine that you bought a property a few years ago. Since values were going up it made sense to buy the biggest home you could afford and to buy that big house you got a $400,000 interest-only loan at 5.6 percent, a mortgage amount that covered 100 percent of the purchase price.

For the first five years the loan was wonderful: Monthly payments were $1,867 plus taxes and insurance. But after five years, the loan automatically converted to a one-year ARM. The one-year LIBOR rate that was originally at 3.60 percent five years ago reached 5.45 percent this August. Combine the LIBOR index rate with a 2.0 percent "margin" and your loan rate jumped to 7.45 percent.

After five years not only does the rate go up, the mortgage bill now includes the expense of monthly principal payments to reduce the loan balance. The monthly cost for principal and interest? It's now $2,943. Taxes and insurance are again extra.

“Those low-payment loans that looked so good a few years ago are going into their second phase,” says Saccacio. “Each day more and more borrowers are finding that the low 'start' payment is gone and that steeper, fully-amortizing payments have now kicked in. At the same time, homes that were once easy to sell are now harder to market. It's a brutal combination and what we're seeing in the Fall of 2006 is likely to get worse.”

The instant solution to high monthly costs is to sell the property. During the past five years many areas have seen huge price increases. The odds are good in most markets that a seller with several years of ownership at this can readily sell, often with a significant profit.

But as the market evolves the odds may become less attractive. Not all markets have seen double-digit growth. In such areas price stagnation or actual declines can lead to huge inventory increases. To sell in down markets homes owners will be forced to offer not only price discounts but other incentives such as "seller contributions" to help buyers at closing, new carpets, new kitchens, moving allowances, etc.

But selling also may not be an option. Not only can a sale in a down market produce a bankrupting loss, but losses on the sale of a personal residence are not tax deductible.

What can you do to avoid being a foreclosure statistic, to not get caught in the impossible position of loan costs that are too high and market values that are too low?

"Act now," says RealtyTrac's Saccacio. "Don't wait for the hammer to fall. If you see a mortgage problem looming in the next year or so, refinance to a long-term, fixed-rate loan before your credit report shows any late or missed payments. Take a careful look at traditional loans with liberal qualification standards such as FHA or VA financing. Speak with your lender about a loan modification and see if your adjustable-rate mortgage has a conversion feature, a right to switch to a fixed-rate within the first few years of the loan term. Because a conversion is a loan modification and not new financing, conversion can be quick and cheap."

If you find a situation where the property cannot be reasonably refinanced, if unaffordable monthly costs are certain, then it makes sense to sell now and move to a less-expensive home with reduced debt, lower monthly costs and fixed-rate financing. Moving is a way to avoid foreclosure and dodge bankruptcy — two events no property owner should experience.

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Peter G. Miller is the author of The Common-Sense Mortgage and is syndicated in more than 90 newspapers

After bottoming in the fourth quarter of 2006, existing-home sales are forecast to gradually rise through 2007 and into 2008, while new-home sales should turnaround by summer, according to the latest forecast by the National Association of Realtors.

David Lereah, NAR’s chief economist, said annual totals for existing-home sales will be fairly comparable between 2006 and 2007.  “We have to keep in mind that we were still in boom conditions during the first quarter of 2006 with a high sales volume and double-digit price appreciation,” he said. “We are starting 2007 from a relatively low point, so even with a gradual improvement in sales it’ll be pretty much of a wash in terms of annual totals.  The good news is that the steady improvement in sales will support price appreciation moving forward.”

Existing-home sales for 2006 are expected to come in at 6.50 million, the third highest on record, with a total of 6.42 million seen in 2007.  New-home sales in 2006 should tally 1.06 million, the fourth highest on record, with 957,000 projected this year.

Total housing starts for 2006 are likely to be 1.81 million units, with 1.51 million forecast in 2007, which would be the lowest level in a decade.  Builders are pulling back on new construction to support prices of remaining inventory.

The 30-year fixed-rate mortgage will probably rise to 6.7 percent by the fourth quarter of 2007.  Last week, Freddie Mac reported the 30-year fixed rate at 6.18 percent – far below earlier consensus forecasts.  “The current interest rate environment and housing inventory levels present a window of opportunity for potential buyers,” Lereah said.

The national median existing-home price for all of 2006 is expected to rise 1.1 percent to $222,100, and then gain 1.5 percent this year to $225,300.  The median new-home price, after rising only 0.3 percent to $241,600 in 2006, is projected to grow 3.0 percent in 2007 to $248,900.

“With all the wild projections by academics, Wall Street analysts and others in the media, it appears that much of the housing sector is experiencing a soft landing,” Lereah said.  “Despite the doomsayers, household wealth will not evaporate and the economy will not go into a recession.  If you’re in it for the long haul, housing is a sound investment.”

The unemployment rate is likely to average 4.8 percent this year, following a rate of 4.6 percent in 2006.  Inflation, as measured by the Consumer Price Index, is expected to be 2.2 percent 2007, down from 3.2 percent last year, while growth in the U.S. gross domestic product is seen at 2.5 percent in 2007, compared with 3.3 percent last year.  Inflation-adjusted disposable personal income should grow 3.4 percent this year, following a rise of 2.7 percent in 2006.