Although the drop in default rates shows promise, the amount of shadow inventory still creates a dark loom over the future of housing prices, according to latest results from Standard & Poor's U.S. Residential Performance Index. The shadow inventory of unresolved distressed properties is currently at an estimated $405 billion, representation four years of housing inventory and one-third of the outstanding U.S. non-agency residential mortgage debt. The report states that full recovery will only occur once the supply of distressed properties shrinks to less than a quarter of the current volume. Additionally, the monthly liquidation and cure rates are at about 2.5%. This stems to an overall resolution rate of 5%, where these rates have lingered in the past nine months. (See chart below) The slowing first default rates seen on the chart allows borrowers to resolve loans and clear out the inventory instead of defaulting and adding more, S&P said in the report. Write to Matthew Torres.