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The Portland housing market is bubbling with activity.

Last month, fueled by rising home prices and the threat of increasing interest rates, the number of buyers flocking to the market reached its highest point in eight years. Homebuilders are taking advantage en masse by buying, demolishing and subdividing single-family lots.

Meanwhile, the specter of the housing crisis continued to haunt many homeowners as foreclosure activity increased.

In July, the number of closed home sales increased 10.2 percent from June to 2,766 – the most in a single month since 2005. Pending sales, meanwhile, dropped slightly but were still up 15.5 percent from a year ago at 2,738.

New listings, at 3,877, were up 3.4 percent from June but that still wasn’t enough to raise the inventory, which fell slightly to 2.8 months. A supply of six months is generally considered a balanced market between buyer and seller; anything less favors sellers.

That’s spurred bidding wars among buyers, which in turn is driving prices – the median has increased 13.7 percent from a year ago to $261,000, according to new data from the Regional Multiple Listings Service. That’s been a source of motivation for buyers on the fence, as have been interest rates, which began to tick up from historically low levels following Federal Reserve Chairman Ben Bernanke’s announcement in May that he would begin tapering his strategy of quantitative easing.

Builders have taken notice. While permits overall have not yet reached pre-recessionary levels, construction activity has equaled or surpassed those levels in some inner-city neighborhoods.

In the Belmont-Hawthorne-Division neighborhood, for example, there were 480 new dwelling units planned in 2012 compared to 244 in 2007, according to data from the Bureau of Development Services and the Bureau of Planning and Sustainability. The same trend was true for the Hollywood, Sellwood-Moreland-Brooklyn, Gateway, Centennial-Glenfair-Wilkes, Northwest Portland, and Hillsdale-Multnomah-Barbur neighborhoods, among others.

In the Martin Luther King Jr.-Alberta neighborhood, there were 233 units planned in 2012 compared to 98 in 2007. Some of that activity comes from large multifamily projects along North Williams and Vancouver avenues, but a lot of it comes from smaller infill projects like one by Lisac Brothers Construction.

In June, the company purchased a 2,640-square-foot home at 106 N. Wygant St. for $550,000. It recently applied for a 12-lot subdivision, and plans to build four row-homes with three-attached residences in each. Mark Lisac, one of the company’s owners, said those units will each likely sell somewhere in the low $300,000s.

“I think (the market) is pretty good right now,” he said. “It went from about 0 to 100 (miles per hour) in just a few months.”

Across the nation, economists have high hopes that will support further economic growth. Foreclosure filings nationally have decreased 32 percent from a year ago. But in Portland, and throughout Oregon, foreclosure activity actually increased.

Last month, there were 909 notices of judicial foreclosure across the state. Daren Blomquist, vice president of RealtyTrac, a national provider of foreclosure data, said that’s the highest level in a single month so far.

Last year, lenders began switching from a predominantly nonjudicial process to a judicial one following a court ruling that challenged the legality of the Mortgage Electronic Registration System (MERS), a digital filing system used almost ubiquitously by lenders. In June, the Oregon Supreme Court offered some clarity on the subject, but Blomquist said banks have since accepted the judicial process and won’t be quick to change.

“So there is this backlog of delayed foreclosures that they’re catching up with, and that’s where we see this big increase,” Blomquist said. “It’s like turning a cruise ship. Once they start down a path they get their systems in place to start foreclosing in that way, and so it may take them some time to switch back, even if they did make that decision to do so.”

Foreclosure starts in Oregon increased 137 percent in July, while the total number of homes in some process of foreclosure increased nearly 70 percent. In the Portland-Vancouver-Beaverton metropolitan statistical area, foreclosure activity increased approximately 55 percent from June, and 116 percent from a year ago.

One development that could slow filings is recent changes to the Oregon Foreclosure Avoidance Program. The law requires banks to meet face-to-face with borrowers to discuss alternatives before foreclosing, but previously only applied to non-judicial foreclosures.

Adam Starr, an attorney at Markowitz, Herbold, Glade & Mehlhaf PC, said that created a significant incentive for banks to avoid the non-judicial system. On Aug. 4, the law was amended to apply to the judicial process as well.

“I think the implementation of the mediation requirement for judicial foreclosures will take away some incentive to avoid the non-judicial foreclosures, which had that requirement implemented already,” Starr said. “… The new mediation requirement will probably not change the overall number of foreclosures, but could start shifting the balance back to non-judicial eventually.”