Foreclosure-related U.S. home sales fell 22 percent in the first quarter from a year earlier as rising prices reduced the incentive to sell for owners who owe more than their properties are worth, RealtyTrac said.

A total of 190,121 homes in some stage of foreclosure or taken by banks were sold this year through March 31, down 18 percent from the previous three months, the data seller said today. Those deals, including short sales, or transactions in which lenders let homeowners sell for less than what they owe, accounted for 21 percent of first-quarter residential transactions, compared with 25 percent a year earlier.

"Prices going up take away the urgency from banks and homeowners from having to do a short sale," Daren Blomquist, vice president of Irvine, California-based RealtyTrac, said in a telephone interview. "Short sales have been seen as an alternative to foreclosure, and some people were counting on that to continue in 2013, but we aren't seeing evidence of that right now."

U.S. home values rose 10.9 percent in the 12 months through March, the most in seven years, after a 9.4 percent gain in February, according to the S&P/Case-Shiller index. All 20 cities in the gauge had year-over-year price increases. Low interest rates, scarce inventory and rising consumer confidence are helping fuel a "continued, gradual recovery" in the housing market, said Brian Jones, a senior U.S. economist for Societe Generale in New York.

Properties in foreclosure are defined as those that had received a notice of default, auction or seizure by banks. Short sales of homes not in this process made up an estimated 15 percent of total sales in the first quarter, RealtyTrac said. That brought the share of all distressed transactions to 36 percent, down from 39 percent a year earlier.

Underwater owners "may be willing to stick it out a few more months or even years" before selling, in a bid to avoid losing money or damaging their credit, Blomquist said.

Foreclosure-related properties sold for an average of $167,095 in the first quarter, down 1 percent from the previous three months and up 3 percent from a year earlier, RealtyTrac said. Such homes were purchased for an average discount of 30 percent to non-distressed properties.

States where distressed sales accounted for the biggest share of total sales included Georgia at 35 percent, Illinois at 32 percent, California at 30 percent and Arizona and Michigan, both at 28 percent, according to the company.

Among metropolitan areas with populations of more than 500,000, Stockton and Modesto, California, led in distressed sales at 44 percent and 41 percent of all sales respectively, followed by Atlanta at 38 percent, Chicago at 35 percent and Orlando, Florida, and Sacramento, California, both at 30 percent, Blomquist said.

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