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Homes classified as "shadow inventory" fell to 2.3 million units in October, down 12.3 percent from a year ago but still representing a seven-month supply of homes, according to a monthly report from real estate data firm CoreLogic.

Homes with seriously delinquent loans attached to them made up 1.04 million of October's shadow inventory. The balance included 903,000 homes in some stage of the foreclosure process and 354,000 bank-owned properties.

Shadow inventory refers to the number of distressed homes likely to hit the market soon, but which aren't yet listed for sale in a multiple listing service or included in traditional pending supply metrics.

October's shadow inventory tally represents 85 percent of the total 2.7 million homes identified by CoreLogic as having seriously delinquent loans, in the foreclosure proces or "real estate-owned" (REO). Seriously delinquent loans are defined as those overdue by 90 days or more.

"We expect a gradual and progressive contraction in the shadow inventory in 2013 as investors continue to snap up foreclosed and REO properties and the broader recovery in housing market fundamentals takes hold," said Anand Nallathambi, president and CEO of CoreLogic, in a statement.

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Given that a significant portion of the shadow inventory has not entered the foreclosure process, it won't have too large an effect in the coming months because of long foreclosure timelines in many states, said Mark Fleming, CoreLogic's chief economist.

The value of the shadow inventory in October was $376 billion, a 5.8 percent drop from October 2011.

The five states where serious delinquencies declined the most in the three months ending in October 2012 were Arizona (13.3 percent), California (9.7 percent), Michigan (6.8 percent), Colorado (6.8 percent) and Wyoming (5.9 percent).

In October, 45 percent of all 2.7 million distressed properties in the U.S. were concentrated in five states: Florida, California, Illinois, New York and New Jersey.

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