James J. Saccacio, chief executive officer of RealtyTrac, said the lower percentage increase last month is due to a big spike in activity in August 2007. Last month, default activity was up 10 percent from a year ago and auction activity up 7 percent year-over-year, Saccacio said.

"The increases in default and auction activity could be slowing down partly as the result of new legislation passed in several states that is designed to give homeowners in distress more time before foreclosure proceedings are initiated," Saccacio said.

The next six months will be critical in terms of the housing crisis, noted Albert Saiz, assistant real estate professor at Wharton School of Business. Consumers and investors will be tracking volatile financial markets, judging the success or failure of this year's housing bill, monitoring the government bailout of Freddie and Fannie, and anticipating the impact of a new president, he said.

Together, California, Florida and Arizona accounted for more than half of the nation's volume of foreclosure activity in August. California's foreclosure activity increased more than 40 percent from July and more than 75 percent from August 2007.

The California cities of Stockton, Merced and Modesto were 1-2-3 in top metro foreclosure rates. July's leader, the Cape Coral-Fort Myers, Fla., metro area, dropped to sixth. Las Vegas came in seventh.