The Shadow knows: inventories in the shadow markets have declined 22 percent from last year's high.

According to a new report from noted research firm CoreLogic, the shadow inventories for U.S. residential housing continued their downward slope in July, falling to 1.6 million units, or a five-month supply of homes.

Shadow inventory properties that are either in foreclosure and have not yet been sold or homes that owners are delaying putting on the market until prices improve. July’s totals are down from 1.7 million in April and 1.9 million a year ago. Shadow inventories peaked in January 2010 at 2 million, or 8.4 months of supply.

Mark Fleming, the chief economist at CoreLogic, said that though declines are positive, shadow inventories will be a lingering problem for housing.

“The steady improvement in the shadow inventory is a positive development for the housing market,” Fleming said. “However, continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time.”

Of the 1.6 million shadow residential properties, 770,000 units are seriously delinquent, 430,000 are in some stage of foreclosure and 390,000 are already in REO.