CHRISTOPHER S. RUGABER, Associated Press Writer
MIKE SCHNEIDER, Associated Press Writer

Even as Americans suffer rising unemployment, foreclosure rates in three states hit hardest by the housing bust — California, Arizona and Florida — stabilized in June, offering hope that the worst of the real estate crisis is over, according to The Associated Press’ monthly analysis of economic stress in more than 3,100 U.S. counties.

The latest results of AP’s Economic Stress Index show foreclosure and bankruptcy rates held steady from May in some states. Yet mounting unemployment is hampering an economic recovery in some regions, especially the Southeast and industrial Midwest.

The AP calculates a score from 1 to 100 based on each county’s unemployment, foreclosure and bankruptcy rates. The higher the score, the higher the economic stress. The average county’s Stress score rose to 10.6 in June, up from 10 in May, mainly because of rising unemployment.

In June 2008, the average county’s Stress score was 6.7. The pain was lower then because the economy was still expanding. In fact, the second quarter of 2008 was the last time the economy grew.

Under a rough rule of thumb, a county is considered stressed when its score zooms past 11. In June, 41 percent of the counties scored 11 or higher, up from 36 percent in May and 34 percent in April. The latest reading was slightly worse than for February and March, when nearly 40 percent of counties met or exceeded that threshold.

The national economy, meanwhile, shrank at a pace of just 1 percent in the second quarter of the year, according to figures released Friday. It was a better-than-expected showing that provided the strongest signal yet that the recession is finally winding down.

In June, foreclosure rates held steady for Arizona, California and Florida at 4.1 percent, 3.5 percent and 3.4 percent, respectively.

“It’s obviously good news to stop the losses,” said Jim Diffley, a regional economist at consulting firm IHS Global Insight.

He cautioned, though, that even as foreclosures level out in some states, they’re doing so “at very high levels.”

Other figures from the past two weeks suggest that the housing market is recovering in many areas.

Nationally, seasonally adjusted home resales in June were up 9 percent from January. New-home sales surged 17 percent in the same period. Construction is up nearly 20 percent since the year began. And prices rose in May for the first time since June 2006.

The housing bust struck first in states such as California, Arizona and Florida, which had seen outsized price increases during the real estate boom.

Now, California’s real estate market, for one, is improving by most measures. Sales increased 20.1 percent in June, and prices rose for the third straight month, according to the California Realtors’ Association.

“It looks like we’re past the peak in foreclosures,” said Steve Goddard, president-elect of the realtors’ association. “Most bank-owned properties are receiving multiple offers.”

Still, foreclosure rates are rising in other states, such as Nevada, Georgia and Utah. Nationwide, Diffley and many other economists say rising unemployment may push foreclosures higher into next year.

Meanwhile, the sharpest year-to-year rise in bankruptcy rates in June occurred in counties in California and Nevada that have been the epicenter of the housing bust, along with areas of Georgia and Tennessee that tend to have high bankruptcy rates.

Among states, Nevada, Michigan and California showed the most economic distress, with Stress scores of 20.41, 18.34 and 15.78, respectively.

In June, Nevada had the nation’s highest foreclosure rate (7.3 percent) and the fifth-highest unemployment rate (12 percent). Its counties have absorbed some of the sharpest growth in bankruptcy filings this year.

Michigan had the nation’s highest unemployment rate in June (15.2 percent) and the sixth-highest foreclosure rate (2 percent). California also had among the nation’s highest unemployment rates (11.6 percent) and foreclosure rates (3.5 percent).

North Dakota, South Dakota and Nebraska showed the least economic distress in June with Stress scores of 5.23, 5.43 and 6.14, respectively.

The states with the biggest year-to-year change for the worse were Nevada, Oregon and Michigan.

For a third straight month, Imperial County, Calif., topped the list of stressed counties of more than 25,000 residents, with a Stress score of 31. Imperial is among the most impoverished U.S. counties.

It was followed by Merced County, Calif. (25.73), Yuma County, Ariz. (24.56), Yuba County, Calif. (23.76) and Lauderdale County, Tenn. (23.46).

“We’ve had a couple of factory closings which have impacted a lot of our workers — mainly automotive supply parts and printing,” said Leslie Sigman, president of the Bank of Ripley, in western Tennessee’s Lauderdale County.

Riley County, Kan., home to the Army’s Fort Riley and Kansas State University, had the nation’s lowest Stress score in June (4.04) in counties with more than 25,000 residents.

It was followed by Brown County, S.D. (4.07), Brookings County, S.D. (4.12), Ward County, N.D. (4.22) and Burleigh County, N.D. (4.27), home of the state’s capital, Bismarck.

These counties are part of an economic “safe zone” stretching from the Plains to Texas that has been largely shielded from the recession because of high energy and crop prices.

Counties with the biggest year-to-year change for the worse were: Howard County, Ind., Williams County, Ohio, Union County, S.C., Chester County, S.C., and Noble County, Ind. At least a third of the jobs in those counties involve manufacturing.

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