Housing inventory has been dropping in recent months, though shadow properties remain on the outskirts.

Housing inventory dipped 17 percent year-over-year, bringing the long-bloated housing marketplace closer to equilibrium – at least among visible inventories.

As tracked by Bill McBride of Calculated Risk, though the declines are seasonally inspired (inventory typically declines through the winter and picks up in February), inventories in many of the 54 areas documented by HousingTracker have experienced noticeable declines, and the 6.2 months-of-supply is the most balanced since the downturn.

Once February hits, McBride predicts inventories will begin to rise.

“The year-over-year decline will probably start to slow since listed inventory is getting close to normal levels,” McBride wrote. “Also, if there is an increase in foreclosures (as expected), this will give some boost to listed inventory … it is the listed months-of-supply (currently 6.2 months) combined with the number of distressed sales that mostly impacts prices.”

Additionally, McBride cited deptofnumber.com data on monthly inventories that showed housing inventory is back to early 2005 levels, and interestingly, following the National Association of Realtors existing-home sale revisions, it appears inventory records from the association are now charting other national averages, as McBride has predicted.

The tricky aspect of the latest inventory readings, though, is the “shadow inventory.” Visible inventory, as previously stated, is on the decline, but the shadow markets – which house REO properties, investor-owned properties, distressed properties, condos that were converted into apartments, and, a relatively recent trend, homeowners pulling their homes off the market and waiting for prices to recover – remains looming on the outskirts of the market, and as such obscure somewhat the case of housing inventories.

According to McBride, many of the shadow properties will slowly leak into the visible markets.

“Some of this ‘shadow inventory’ will be forced on the market, such as completed foreclosures, but most of these sellers will probably wait for a ‘better market,'” McBride wrote.