According to Realtor.com Research, short sales are becoming more common in the housing market, though they remain a relatively small slice of overall transactions. A short sale occurs when someone sells their home for less than what they still owe the lender, and it requires the lender's approval since they take a financial loss. For homeowners, it's typically a way to escape an underwater mortgage situation where they owe more than the property is worth, though they don't receive any money from the sale.
The conditions that create underwater mortgages have shifted in recent years. During the rapid price appreciation of 2021 and 2022, virtually nobody was underwater because homes were selling for gains. But as the market has flattened out, buyers who stretched to purchase near the peak now have minimal equity cushion. When combined with rising insurance, property taxes, and elevated mortgage rates, these homeowners are increasingly stressed. This is why short sales are becoming a concern now after being nearly nonexistent just a few years ago.
The comeback of short sales is real but modest. After hitting a historic peak of roughly 358,000 transactions in 2012 during the Great Recession's aftermath, they nearly disappeared as the market recovered and homeowners rebuilt equity. Now they're rising again, with transaction volumes up about 16 percent year over year in early 2026. However, they still represent only about 0.6 percent of all home sales nationally, less than a tenth of their 2012 peak.
The geographic pattern of short sales reveals something interesting. They're not concentrated in the most affordable markets like foreclosures are. Instead, short sales show up predominantly in moderately priced markets, particularly in the West and Florida. Cities like Salt Lake City, Dallas, and Austin are leading the way in terms of short-sale market share. Some Western markets have seen dramatic shifts from the crisis years, with Las Vegas dropping from nearly a quarter of sales being short sales in 2012 to just 0.3 percent today.
When comparing prices, short sales have historically offered steeper discounts than foreclosures. While foreclosed homes consistently sell for 25 to 30 percent below estimated value, short-sale discounts have been more volatile and often larger, sometimes reaching 50 percent below value depending on the year.
What I am seeing locally here in the Bay Area and Fremont is that while the broader trend toward short sales is real, we're still dealing with very small numbers. The moderately priced markets showing the strongest short-sale activity are in different regions than ours, though it's worth keeping an eye on how these distressed sales develop as affordability pressures continue. For my clients, understanding these trends helps explain market movements we might see in specific neighborhoods, and it's a reminder that the easier conditions of recent years mean some buyers are now carrying real financial stress.
