Homeowners behind on their mortgages or expecting to run behind because of some hardship prefer short sales to foreclosure and bankruptcy because the remaining debt is forgiven and the homeowners' credit takes a lesser hit.
According to the report, properties not in foreclosure that sold as short sales in the first quarter accounted for an estimated 15 percent of all residential sales. This is down 10 percent from the fourth quarter of 2012 and down 35 percent from Q1 2012.
Completed short sales in Florida dropped 17.8 percent on single-family homes and 33.3 percent on condominiums and co-ops during the same period.
Daren Blomquist, vice president at RealtyTrac, was also surprised.
"We expected foreclosure-related sales to be lower given the downward trend in new foreclosure activity nationwide over the past two and a half years, but the decrease in nonforeclosure short sales was a bit of a surprise given the 11 million homeowners nationwide still underwater," he said.
Though the national numbers of short sales are down, there are still some markets that are impacted by this category. Here are the states with the highest percentages of short sales, according to RealtyTrac: Rhode Island, 44 percent; Connecticut, 42; Massachusetts, 40; Nevada, 29; Florida, 26; and Ohio, 24.
Here are the major markets with the highest percentages of short sales: Boston, 38 percent; Cleveland, 33; Memphis, 32; Las Vegas, 32; and Detroit, 30.
The overall decrease wasn't anticipated.
"Rising home prices in many markets are stunting the continued growth of short sales by reducing incentive for both underwater homeowners and lenders," Blomquist explained. "Underwater homeowners may be willing to stick it out a few more months or even years in the hope that they will be able to walk away with money at the closing table and without a hit to their credit rating, and for lenders a failed short sale may no longer translate into bigger losses down the road given that average prices of bank-owned homes are rising - at a faster pace than non-distressed home prices in many markets."
Short sales will remain a major segment of the real estate market as 15 percent is still a very significant number. The decrease, however, is further evidence that the housing market is recovering, RealtyTrac reported.