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Fewer distressed homes could spur home construction

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Positive housing data that shows existing-home sales up from year ago levels should be weighed against ongoing employment concerns and consumers' economic fears, Fitch Ratings said in a new report Friday. 

In other words, the nation may be in a modest housing recovery, but too many outliers remain to declare an end to the nation's real estate troubles.

As for who may benefit from housing data that shows the supply of distressed assets dwindling and rents rising, Fitch points to homebuilders who may experience an uptick in new home construction.  

The Commerce Department even reported this week that new home construction rose 15% in September to 872,000 units on a seasonally-adjusted basis. While existing-home sales fell month-over-month in September, they remain significantly higher than year ago levels.

"However, we note that new home construction numbers can be volatile as they fluctuate more frequently versus other indicators," said Robert Curran, managing director of homebuilding for Fitch. "Although starts have been stronger for several months, we are hesitant to suggest that a V-shaped housing recovery is forming."

Today, there is less competition from distressed home sales and rental prices are on the rise, Curran noted. These factors alone could send homebuyers scrambling for the creation of new homes.

With this in mind, Curran says single-family housing starts could rise a total of 19% in 2012, while existing home sales are expected to grow 8.5% for the year. He expects "further moderate improvement" next year.

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