Will the thinly stretched finances of U.S. homeowners lead to a sharp rise in foreclosures and a collapse of the so-called housing bubble?

A new report just released by the U.S. Census Bureau, based on 2005 data, suggests that the American public is spending more of their disposable income on necessities — especially owner occupied and rental housing. Depending on the city, if those costs increase any more than they already have, the end result could very well be seen on the RealtyTrac website.

Take San Diego, for example, where the median price of a home jumped from $249,000 to $567,000 in five years (2000-2005). Not only is San Diego unaffordable for many first-time home buyers, but, according to the RealtyTrac U.S. Foreclosure Market Report for August 2006, the city also had the third highest number of foreclosures in California with a foreclosure rate of one new foreclosure filing for every 745 households — 1.35 times the national average.

Or consider New Jersey, which had the highest monthly housing cost for homeowners in the nation, at $1,938. Moreover, the state ranked 11^th nationally in total number of foreclosures for August 2006, an increase of 95 percent over August 2005.

But will these overextended homeowners simply be absorbed by a softening but stable housing market? Or will they become a pricklier problem that ends up bursting the housing bubble? We’d like to hear your opinion. We appreciate your comments and feedback.