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) -- The U.S. housing market is recovering slowly in many cities, but bargain hunters in certain areas can still find "short sales" -- properties that sell for less than their current owners' remaining mortgage balances.

"Overall, we're continuing to see increases in short sales," says Daren Blomquist of industry watcher


, which analyzed fourth-quarter sales data recently to determine America's "Best Markets for Buying Short Sales."

Short sales are transactions in which consumers whose property values have fallen below their mortgage balances sell the places anyway, with the bank "forgiving" the difference. Lenders go along with such deals when they believe doing so will result in smaller losses than foreclosing would.

Banks rejected many proposed short sales early in the housing bust, but such transactions now exceed the number of U.S. homes lenders sell through foreclosure.

Blomquist says big banks have become more amenable to short sales since reaching a $25 billion settlement with the U.S. government and 49 states last year over questionable practices during the housing boom. Mortgage giants

Fannie Mae


Freddie Mac

also changed their rules in November to streamline short-sale approvals.

Here's a look at the five metro areas RealtyTrac believes offer bargain hunters the best opportunities for short sales of houses, condos and multifamily buildings with four units or less.

Cities on the list had the nation's highest year-over-year percentage increases in short sales during the fourth quarter among metro areas that saw at least 200 such deals.

The top-rated cities are also all in states where the average short sale closes within a year of lenders launching foreclosure proceedings. (Some banks are notorious for taking longer than that to approve deals.)

Fifth-best metro area for short sales: Vallejo, Calif.

Percent increase in short sales:


Most of the top cities on RealtyTrac's list are in California, which doesn't surprise Blomquist.

He says banks there approved large numbers of short sales during the fourth quarter to avoid a statewide anti-foreclosure "Homeowner Bill of Rights" that took effect Jan. 1.

Vallejo, some 30 miles from downtown San Francisco, already had so many foreclosures that


recently ranked the city No. 6 on the magazine's annual list of

America's Most Miserable Cities


Of course, that means the 421,000-population metro area has plenty of distressed homes.

Short sales there sold for just $192,432 on average during the fourth quarter -- $177,748 less than the typical property's unpaid mortgage balance.

Fourth-best metro area for short sales: Grand Rapids, Mich.

Percent increase in short sales:


Late President Gerald Ford's hometown saw a big jump in short sales during the fourth quarter, and Blomquist suspects that's because 37% of Michigan mortgage borrowers are "underwater."

Underwater consumers owe more on their mortgages than their homes are worth, so they can sell properties only though short sales or by ponying up cash to cover their deficits.

In Grand Rapids, a 1-million-person metro area in the state's southwest region, short sales sold for $91,145 on average in the fourth quarter. That's a $53,158 discount from their owners' remaining mortgage debts.

Third-best metro area for short sales: Fresno, Calif.

Percent increase in short sales:


Located in the heart of California's agricultural Central Valley, Fresno has seen falling home prices and lots of foreclosures in recent years.

But Blomquist says that makes the 1.1-million-person metro area a great location for short-sale buyers.

:"There's pretty much nowhere for the market to go but up," he says. "You're pretty safe in expecting the value of any home that you buy to appreciate over time, and prices are so low that it's much easier to

make money on a rental."

The typical Fresno short sale sold for just $145,313 during the fourth quarter -- $89,140 below the average seller's mortgage balance.

Second-best metro for short sales: Visalia, Calif.

Percent increase in short sales:


Like nearby Fresno, Visalia has seen declining prices and plenty of foreclosures during the bust.

But again, Blomquist says that makes the 452,000-population metro area a good choice for bargain hunters.

"The Central Valley markets have been bouncing back and there's actually a shortage of

homes for sale -- but if you can land a short sale there, it's probably going to appreciate over the next few years," he says.

Visalia's average short sale cost $126,496 during the latest quarter -- $71,102 below the property's unpaid mortgage principal.

Best metro area for short sales: Santa Barbara, Calif.

Percent increase in short sales:


Median house prices in upscale Santa Barbara County peaked at $878,000 in 2007 during the housing boom, then tumbled to just $297,000 a mere 20 months later.

Blomquist says that's left the metro area, a desirable coastal community some 95 miles northwest of Los Angeles, with lots of distressed properties.

"Homeowners can get in over their heads even in very high-end markets," he says.

The typical Santa Barbara-area short sale sold during the fourth quarter for only $283,825. That's $178,201 below the property's remaining mortgage balance./p>