Utah's housing bubble is forecast to burst in a big way, with one in 25 Utah homeowners projected to be in foreclosure in the next two years, according to a report released Wednesday by The Pew Charitable Trusts.

The report attributed the rise in foreclosures to subprime loans made in 2005 and 2006. In those years, 24 percent of home loans in Utah were subprime.

The outlook is grim in several other states, as well, including Nevada, where one in 11 homeowners are projected to be in foreclosure in the next two years, and Arizona, where one in 18 homeowners may face the same circumstance. Rounding out the five states with the highest projected foreclosure rates were California at one in 20, and Utah, which tied with Colorado at one in 25, or a 4 percent rate of foreclosure.

"Is the American dream slipping away?" asked Shelley Hearne, managing director of Pew's Health and Human Services program, in a letter introducing the report, titled "Defaulting on the Dream: States Respond to America's Foreclosure Crisis."

Because of foreclosures in their communities, 40 million homeowners could see their property values and their municipalities' tax bases drop by as much as $356 billion, largely over the next two years, said Hearne, a professor of health policy and management at Johns Hopkins University.

"The stakes are incredibly high. Homeownership is the primary vehicle through which American families build financial security," she said. "It also is an essential building block of state and local economies."

Jim Wood, director of the University of Utah's Bureau of Business and Economic Research, said that Utah's previous highest rate of foreclosures was about 2 percent in 2002, coinciding with the last recession. He noted that foreclosures are closely tied to unemployment rates and rapid home price appreciation, which Utah was able to avoid for the most part during the national housing boom, due to the state's strong, stable economy.

The Pew report's prediction of a 4 percent foreclosure rate "would be close to an all-time high," he said "It's quite pessimistic — double what we've been before."

He attributed the state's recent housing bubble to overly optimistic beliefs by those in the housing industry, combined with eager homebuyers and sellers, which prompted a home-building run-up during the past few years.

Hearne said that the Pew study is the first comprehensive look at what all 50 states and the District of Columbia are doing to try to address the subprime mortgage fallout. The study was a joint effort between the Pew Center on the States and Pew's Health and Human Services Program.