S&P downgraded its expectations for the shadow markets ever so slight in 2012's first quarter.

A new study out by Standard & Poor’s is estimating it will take 46 months to clear out the nation’s supply of shadow inventory, one month less than predictions from 2011.

Liquidation rates for the residential mortgage markets appeared stable, the firm’s analysts said, though they did say that the difference between local markets made a national projection difficult for the market. Jacques Alcabes, a credit analyst for S&P, said in a HousingWire piece on inventories that a decline in acquisitions for the market was a big bright spot.

“On a more positive note, the rate at which properties enter the shadow inventory slowed during the first quarter to the lowest level since May 2007,” Alcabes said.

A reason for S&P’s contraction, HousingWire noted, was the movement of prices in many metro areas to new post-recession lows, a development that has led to increased demand for housing by investors and buyers, who are spurred on by the shrinking holding inventory.

Mark Fleming, CoreLogic’s chief economist said the drop in inventory has brought balance to supply and demand.

“This spring the housing market is responding to an improving balance between real estate supply and demand which is causing stabilization in house prices,” Fleming said. “Although this has been the case in each of the last two years, the difference this year is that stabilization is occurring without the support of tax credits and in spite of a declining share of REO sales.”

One agent who has definitely seen an increase in demand is Joe Siciliano, a branch manager in Lakeview for Coldwell Banker, who said demand for foreclosures and distressed properties has been so high in Chicago’s North Side that “the shadow inventory stuff doesn’t really scare me.”

In today’s marketplace, Siciliano said investor groups, which are composed of several investors with an eye for the distressed property market, are so aggressive that foreclosed properties are sold almost immediately.

“Anything that has the word foreclosure on it,” Siciliano said, “investors are fighting for it.”

Outside of the distressed re-sell market, Siciliano said business at his offices has not slowed at all since March, when he had commented on how improving consumer confidence has created a significant increase in demand.

And now, his office can’t keep its inventory on the market long enough, what with the pent-up demand from buyers that is making its way into the marketplace. If it’s price correctly, and located in a good area, Siciliano said it will generate interest in today’s market, a reality we just covered a few days ago.