As Economy Improves, Prices to Hit Bottom in 2013 After Dropping: Fitch

""Fitch Ratings"":http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp released a report projecting another 7.8 percent drop in U.S. home prices before the market reaches sustainability, according to the rating agency's fourth quarter sustainable home price (SHP) report. This is a decrease from last quarter's prediction of a 9.1 percent drop.

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As long as economic growth is steady and inflation runs close to 3 percent annually, Fitch believes home prices will finally hit bottom in late 2013, and then move towards a slow recovery.

Fitch cited factors such as high unemployment, a declining labor force, stagnant wages, and a large delinquent inventory as factors hindering recovery.

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For states such as Nevada and Michigan, which are 65 percent and 48 percent below their peaks, respectively, prices are falling more steeply than the national average. However, a careful examination of Michigan reveals the state might be stabilizing. Fitch reported that prices over the last year are down less than 1 percent, and Detroit has seen prices rise by more than 8 percent in the last six months.

New York and New Jersey, known for their long liquidation timelines, are seeing price declines. New York has seen a 2.7 percent decrease in a year, despite having a strong metropolitan such as New York. In New Jersey, prices are down by more than 7 percent over a year.

According to data from Fitch, plains states are seeing price increases while their economies remain strong. Year-over-year, prices in North Dakota increased 1.7 percent, while in Nebraska, prices increased by 1.1 percent.

For most states, the peak was reached in 2006, but some states may have peaked in 2005 or 2007.

Home prices in North Dakota are back to their peak level, while South Dakota is just 7 percent below its peak. Also, Alaska is just 6 percent below its peak, Texas and Oklahoma are 8 percent, and Iowa 10 percent.

Prices in Arizona moved upward slightly, which may signal a start towards recovery.

While prices in Arizona are about 59 percent below their peak, the worst seems to be over for the state, which ranked in the bottom half for the volume of its distressed inventory.