Short Sales Rise as Foreclosure Alternative

Short sales are emerging as a more frequent alternative to foreclosure for homeowners facing financial distress, according to a new report from Realtor.com. In a short sale, homeowners who owe more on their mortgage than their home's current market value collaborate with their lender to sell the property at a loss. This voluntary process requires lender coordination, distinguishing it from foreclosure. In the past year, the U.S. recorded nearly 30,000 short sales, accounting for 28% of all distressed home sales. Since 2023, short sale transactions have increased by 30%, including a 16% year-over-year rise between 2025 and 2026. This growing popularity has also led to a shift in pricing dynamics, with short sales now commanding a smaller discount compared to foreclosures, reversing a decade-long trend. Currently, a distressed home sold via short sale retains approximately 9% more of its estimated value than one sold through foreclosure.

Realtor.com Chief Economist Danielle Hale noted that even in a robust economy with near-record home prices, some households encounter difficult situations. She highlighted that struggling homeowners now have more options than in prior decades. While short sales can be intricate and necessitate proactive borrower engagement, they offer significant advantages over the severe financial repercussions associated with foreclosure. Hale pointed out that foreclosures are more prevalent in the nation's most affordable housing markets. Conversely, short sales are more common in mid-priced markets, particularly in the Western U.S. and Florida. The report identified Miami, New York, Tampa, Phoenix, and Houston as leading metropolitan areas for short sale listings. Meanwhile, Salt Lake City, Austin, and Dallas recorded the highest number of completed short sales.