Shadow inventory is the supply of homes in forclosure or have seriously deliquent mortgages and are coming the market soon.

The number of these "shadow" homes dropped from 2.6 millino on October 2011 to 2.3 million in October 2012.  Progress?  Maybe.

Some experts once predicted that this would put downward pressure on home prices.  However, increased short sales and loan modifications have helped lessen that impact.

The size of shadow inventory shrinks in terms of dollars and number of units.  According to Corelogic, "we expect to see a gradual and progressive contraction in the shadow inventory in 2013 as investors continue to snap up foreclosed and REO properties and the broader recovery in housing market fundamentals takes hold."