Home prices will not reach a true bottom until late 2013, Fitch Ratings said.  

Still, investors are busy scoping the market for deals, with more real estate professionals and mid-sized private equity firms acquiring homes in key areas to rent them out, Fitch Senior Director Suzanne Mistretta said in a new structured finance report.

The New York-based ratings giant believes home prices in the U.S. will decline another 7.8%, which is improved from a previous estimate of an additional 9.8% drop. Research firm Capital Economics expressed similar optimism, declaring Tuesday that a rise in April existing-home sales suggests a modest recovery driven by cash buyers and investors.

Fitch said other parties on the securitization side have built and offered distressed residential mortgage-backed securities funds. In addition, larger firms are now allocating capital to distressed mortgage bonds, sending additional doses of optimism throughout the market.

Fitch believes 12 states are now undervalued in terms of prices while 14 states now have price levels in a sustainable range. The company cited Arizona as an example of a state that experienced steep price declines but is now beginning to stabilize.

But prices aren't up everywhere. New York and New Jersey are seeing prices fall.

Market recoveries will hinge on what happens at the local level, the report added. Georgia is one of the worst performing states with prices 32% below levels reached in 2000.

"Those losses are second only to Michigan's. But a closer look at Atlanta exemplifies the local nature of the crisis and recovery," Fitch said. "Prices in the central portion of the city and its affluent northern suburb have largely held ground, while the southern portion of the city's prices collapsed."

Fitch believes there's a need to stop steep price declines in parts of the South. The research firm suggests REO-to-rental programs in troubled neighborhoods could fill vacant homes, making the neighborhoods more viable again.