A new CoreLogic report says that “shadow inventory” (homes in the foreclosure process that will presumably enter the market soon) is down — in January it was 18 percent lower than a year ago. And it’s continuing to drop.

For a while, there was much being made about shadow inventory and how it was going to flood the market, lower prices, and stall the recovery. (We argued against that a-plenty, but there were still a good number of pundits who spread the fear.)

Courtesy CoreLogic

Further, shadow inventory was seen as a sort-of-hidden barometer of the market. The more there was, the more indication that people were still being foreclosed upon. It was a sign of an unhealthy market.

Virginia, by the way, is in the middle of the pack. As of January, between 5 and 6 percent of mortgages are 90 or more days delinquent. Compare Nevada, Kentucky, Vermont, or six other states that have a 7+ percent delinquency rate.

So shadow inventory is down and going down. Good news, right? Probably yes. But there’s another issue.

In some ways, shadow inventory was kind of like the market’s inventory reserves. It trickled into the MLS relatively slowly, which was great when inventory was high (it didn’t push prices down). Now, though, as more areas are seeing a lack of inventory as a problem, a  little shadow inventory might be a good thing.

My spider-sense tells me that the fate of shadow inventory is something worth keeping an eye one. How much, I wonder, is sitting in REO right now — officially off CoreLogic’s radar, but still not on the market.