The housing market's shadow inventory, which includes unlisted bank-owned homes not yet on the market and homes in pre-foreclosure, declined by more than 30 percent annually in July. Housing's steady growth this year, most notably in increasing prices, has allowed lenders to bring distressed homes to the market without hampering the industry's progress.

The housing market's pre-sale foreclosure inventory, known informally as the shadow inventory, declined 2.82 percent from June to July to a total of 1.4 million homes. Since July 2012, this number has dropped by 30.76 percent, according to a new Lender Processing Services (LPS) report.

The decline marks a reduction of close to 50 percent from the pre-sale inventory's peak in January 2010. A preview of LPS's Mortgage Monitor shows that in spite of the decline, more than 4.5 million mortgage loans nationwide remained in some category of distress at the end of July.

Concerns that the shadow inventory would slow the housing industry's recovery have been prevalent since the market's crisis began, but the dramatic year-over-year decline reported by the Monitor could begin to alleviate those fears if other housing indicators continue to improve.

The delinquency rate – loans that were 30 days or more past due but not in foreclosure – fell to 6.41 percent of all U.S. homes with a mortgage, a 3.96 percent decline. At the end of July, 3.19 million properties were considered delinquent but not in foreclosure, and 1.35 million of those were seriously delinquent, i.e. 90 or more days past due but not in foreclosure.