The number of properties pending foreclosure or REO, but not yet on the market to sell, is down year-over-year in April. The shadow inventory supply now stands at 1.5 million units, representing a four-month supply, according to CoreLogic (CLGX).

The shadow inventory fell nearly 15% annually and is now similar to October 2008 levels.

"The decline in the shadow inventory is a positive development because it removes some of the downward pressure on house prices,” said Mark Fleming, chief economist for CoreLogic. "This is one of the reasons why some markets that were formerly identified as deeply distressed, like Arizona, California and Nevada, are now experiencing price increases."

CoreLogic said the dollar volume of shadow inventory is now $246 billion as of April 2012, down from $270 billion a year ago and a three-year low.

Serious delinquencies, which are the main driver of the shadow inventory, declined the most in Arizona (-37%), California (-28%), Nevada (-27.4%), Michigan (-23.7%) and Minnesota (-18.1%).

Paul Diggle, property economist for Capital Economics, said in a note on house prices that the outlook is greatly improved. "The extent of undervaluation in the U.S. housing market convinces us that if house prices were now to move significantly in one direction or the other, they are much more likely to rise than to fall," he said.

Luis E. Vergara, a director at Mission Capital Advisors said the CoreLogic report suggests an increase in the velocity with which servicers are liquidating non-performing loans. "However, the CoreLogic methodology omits 90+ day delinquent loans that were recently cured or modified and the likely occurrence of re-default for a subset of this group," said Vergara. "The drop in shadow inventory may not be as rosy as the report implies."