In October 2005, the tidy two-bed, one-bath home at 868 Rochelle Dr. in southwest Atlanta's Oakland City neighborhood sold for $118,000.

The figure seemed reasonable, even for a small home in a transitional part of town. Nearby houses were selling for similar amounts, and people seemed hungry to gobble up any piece of property inside the Perimeter before prices leapt even further.

Paul Donsky/AJC (ENLARGE)

A view of the foreclosed home at 2469 Mellville Ave. in south DeKalb County.

Paul Donsky/AJC (ENLARGE)

This home at 868 Rochelle Drive in southwest Atlanta went into foreclosure last fall and was recently put under contract for about $20,000.

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But just four months later, in the dead of winter 2006, the house sold again for $210,000 — an astonishing figure nearly double the recent sale price.

In an instant, the home became a symbol of Atlanta's overheated real estate market. The bubble popped last year, sparking a wave of foreclosures and falling housing prices in parts of Atlanta, DeKalb and south Fulton counties.

The Rochelle Drive home went into foreclosure last fall and was recently put under contract for about $20,000 — about the cost of a Toyota Camry, and less than a tenth of what the house sold for just two years earlier.

A rash of foreclosures has severely depressed home values in much of southwest Atlanta, said Elena Gish of Re/Max, who was the listing agent for the Rochelle Drive house. She said the earlier $210,000 sale price indicated the home had been improperly inflated.

"Come on, Rochelle Drive, a year or two ago, $210,000? Give me a break," she said.

The median price of existing homes in the 30310 ZIP code, which includes Oakland City and West End, fell by 23 percent last year to $87,000, according to data obtained by SmartNumbers, a firm that analyzes home sales data and spots trends in the real estate industry.

Only one other area in metro Atlanta saw a similar drop in the price of existing homes — the 30021 ZIP code in DeKalb County, which includes Clarkston.

Other areas that saw a sharp decline in prices include the 30314 ZIP code in Atlanta, which includes Vine City, Washington Park; and the 30035 and 30032 ZIP codes in south DeKalb.

The Atlantic Station area near Midtown Atlanta, ZIP code 30363, saw the metro area's biggest decline in total median price, which includes both new and existing homes — a 31 percent drop, to $210,000.

Even affluent sections of the city were not immune from the downturn. The Midtown, Ansley Park and Brookwood Hills section of Atlanta, ZIP code 30309, saw the number of home sales fall a staggering 41 percent.

There were some bright spots. The 30305 ZIP code in Buckhead saw the median price of all homes rise by 31 percent, to $328,400. The 30319 ZIP code in DeKalb, which includes Brookhaven, experienced a 25 percent increase in the total number of homes sold.

But many areas saw a sharp turn of fortunes. Gish, the Re/Max agent, tried to put the downturn in the most positive light, saying plenty of bargains are to be had. "Right now, it's a great time to buy," she said.

The real estate troubles worry home owners like Willie Nickerson, an 84-year-old retired warehouse supervisor who lives next door to a foreclosed house off Candler Road in south DeKalb County.

The foreclosed home, at 2469 Mellville Ave., is in rough shape. The front lawn is weedy and overgrown. The appliances are gone and there are no electric meters.

The two-bed, one-bath home sold in February 2006 for $149,900, but it went into foreclosure and is now on the market for just $79,500.

"I'm worried about what's going to happen in the future," said Nickerson, walking down the sidewalk with the help of a cane. "I don't know what my house is worth."

He pointed to the empty house and shook his head.

"I wish someone would buy it and keep it up," he said. "The grass needs cutting. It makes my house look bad."

Why are prices falling? It helps to first understand what caused home prices to shoot up in the first place.

In recent years, banks relaxed their lending standards, creating a much larger pool of potential buyers than ever before — including risky borrowers who obtained so-called subprime mortgages. Demand for homes soared, pushing prices upward in Atlanta and across the country.

The easing of lending standards enabled some people to purchase more expensive homes than they could actually afford, real estate professionals say. Once low "teaser" interest rates expired, monthly payments skyrocketed, causing some owners to default on their loans.

Banks, stung by the wave of foreclosures, have significantly tightened lending standards, reducing the number of people able to buy homes, further depressing home values.

Then there's old-fashioned fraud. In some cases, people overstated their income in order to qualify for a larger loan than they could afford. In other cases, buyers colluded with appraisers, attorneys and other real estate professionals to obtain a loan worth much more than the actual value of the home, walking away with the difference without making any mortgage payments.

Agents like Tommy Blackwell say scams are all too common in Atlanta. He's seen people buy up inexpensive houses, slap on fake marble countertops as part of a low-end renovation, and with the help of willing appraisers convince out-of-state banks that the home's value had suddenly doubled or even tripled.

The owners never live in the homes, leaving them to fall into foreclosure and disrepair. "These aren't good families losing their homes, it's loan fraud," he said.

Whatever the source of the problems, they don't appear to be dissipating. The latest foreclosure data from Alpharetta-based Equity Depot shows a big jump in DeKalb and Fulton.

In Fulton, lenders scheduled 15,553 foreclosures in 2007, compared to 8,847 in 2005. In DeKalb, 11,080 foreclosures were scheduled, compared to 8,149 in 2005.

In the 30310 ZIP code that includes Oakland City, lenders scheduled 867 foreclosure sales through May of this year, double the number for the same period in 2003.