2025 U.S. Short Sale & Foreclosure Trends: Year-End Market Review

Introduction

As the dust settles on another tumultuous year in housing, 2025 has shown that financial strain on homeowners remains a defining theme. With elevated mortgage rates, ongoing affordability challenges, and fluctuating inventory levels, both short sales and foreclosures have drawn increased attention from real estate professionals, lenders, buyers, and sellers alike.

In this year-end market review, we’ll break down the key trends in short sales and foreclosures across the U.S., provide year-over-year comparisons, and highlight what these signals mean for real estate agents and homeowners navigating distressed property markets.

Short Sales: Rising From the Shadows (But Still Small)

Short sales—the process where lenders agree to accept less than what a homeowner owes to avoid foreclosure—have begun to resurface as a more noticeable part of the overall market.

Unlike the mid-2000s, when short sales accounted for a significant share of distressed transactions, today they still represent a tiny slice of overall sales, but with notable year-over-year increases in certain markets.

One regional analysis showed that short sales were up in 2025 compared to 2024, in some markets by as much as 25% to 140% year over year—though those gains came off a very low baseline. In places like Sacramento, Phoenix, and parts of Florida, this uptick in distressed listings reflects localized affordability struggles, offering opportunities for investors and agents specializing in short sale negotiations.

Still, even with these gains, short sales nationwide remain a small percentage of total transactions, often under 1% in many metros.

Foreclosures: Climbing Year‑Over‑Year

Unlike short sales, foreclosure activity has moved noticeably higher in 2025 compared to the previous year.

According to data from ATTOM and other property analytics firms:

• Foreclosure filings nationwide were up approximately 19–20% year-over-year in late 2025 compared to the same period in 2024.

• Foreclosure starts (the beginning of the process) were up about 20% year over year, while completed foreclosures rose more than 30%.

• In Q3 2025 alone, 72,317 U.S. properties began the foreclosure process, a 16% increase from a year earlier.

These rising numbers suggest that more homeowners are falling behind on mortgage payments, likely tied to the broader affordability squeeze and the lingering effects of higher borrowing costs throughout the year.

In parts of the Southeast and Midwest, foreclosure rates were especially elevated, with states like Florida, South Carolina, and Illinois among the hardest hit.

Comparing 2025 With 2024 & Earlier

Looking back at 2024 puts 2025’s trends in context:

• In 2024, foreclosure filings actually declined about 10% compared with 2023, landing at roughly 322,000 filings nationwide. That year’s decrease had suggested a possible stabilization in distressed markets after post-pandemic pressures.

But in 2025, the direction reversed. Multiple data sources show consistent year-over-year increases in foreclosure activity throughout the year, signaling renewed stress among homeowners who have carried high mortgage costs and limited mobility since the early 2020s.

What’s Driving These Trends?

Mortgage Rate Pressures. Although mortgage rates dipped slightly toward the end of 2025, they remained higher than the ultra-low rates of the pandemic era, locking many homeowners in place. Homeowners facing higher monthly payments and limited refinance options were more vulnerable to financial stress, culminating in more distressed outcomes like foreclosures and, where feasible, short sales.

Persistent Affordability Challenges. Limited housing inventory and high prices continued to make moving difficult. Many sellers simply choose to stay put, suppressing overall transaction activity. This phenomenon—coupled with rising living costs—has contributed to more homeowners approaching delinquency in certain regions.

Regional Variations. Some cities and states experienced sharper increases in distressed activity compared with national averages. For instance, certain western and southeastern markets saw double-digit year-over-year increases in short sale listings, and many states saw elevated foreclosure rates relative to their peers.

Market Implications for 2026

With foreclosure activity trending upward and short sales slowly gaining traction in pockets of the country, housing market participants should be prepared:

• Real estate agents who understand distressed transactions can capitalize on market niches where short sales are resurging.

• Homeowners struggling to make payments should consider strategic alternatives like negotiated short sales to avoid the long-term credit impact of foreclosure.

• Investors might find value in distressed properties, though rising activity also reflects broader systemic pressures.

Experts predict that housing market dynamics will continue to evolve in 2026, influenced by economic conditions, mortgage affordability, and inventory availability.

Conclusion

The full year’s data paints a nuanced picture of U.S. housing distress in 2025: foreclosures rising sharply year over year, short sales emerging more visibly (but still small overall), and broad affordability challenges continuing to shape homeowners’ options.

For real estate professionals and homeowners alike, staying informed about these trends—and understanding how to navigate distressed property pathways like short sales—is more critical than ever.