BOSTON ( TheStreet) -- 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 RealtyTrac, 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 and 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: 77%
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 Forbes 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.