The market appears to have made significant progress digestingthe large number of foreclosedproperties left over from the housing finance crisis.

According to real estate marketing firm RealtyTrac, foreclosedproperty only accounted for 21% of all real estate sold nationallyin the first three months of 2013, compared to taking up 25% in inthe same period in 2012 and 45% in the same period of 2009.

Properties not in foreclosure that sold as short sales in thefirst quarter accounted for an estimated 15% of all residentialsales, the firm reported. That brought the total share ofdistressed sales during the quarter to 36%.

Non-foreclosure short sales also trended lower in the firstquarter, down 10% from the previous quarter and down 35% from thefirst quarter of 2012.

“We expected foreclosure-related sales to be lower given thedownward trend in new foreclosure activity nationwide over the pasttwo and a half years, but the decrease in non-foreclosure shortsales was a bit of surprise given the 11 million homeownersnationwide still underwater,” said Daren Blomquist, vice presidentat RealtyTrac.

“Rising home prices in many markets are stunting the continuedgrowth of short sales by reducing incentive for both underwaterhomeowners and lenders,” Blomquist said

“Underwater homeowners may be willing to stick it out a few moremonths or even years in the hope that they will be able to walkaway with money at the closing table and without a hit to theircredit rating,” he said, “and for lenders a failed short sale mayno longer translate into bigger losses down the road given thataverage prices of bank-owned homes are rising — at a faster pacethan non-distressed home prices in many markets.”

The states with the biggest percentage of foreclosure-relatedsales were Georgia (35%), Illinois (32%), California (30%), Arizona(28%), and Michigan (28%). States where foreclosure-related salesaccount for less than 10% of all sales include Massachusetts, NewYork and New Jersey, according to the firm's data.

The average price of a property in foreclosure was 30% below theaverage price of a non-foreclosure property in the first quarter,down from a 31% discount in the fourth quarter but up from a 28%discount in the first quarter of 2012, RealtyTrac added.