U.S. home prices could drop another 7.8% before reaching bottom next year, Fitch Ratings said in a report released Thursday. 

A Fitch report from director Stefan Hilts forecasts steady economic growth and inflation levels that are close to 3% annually. The combination of the two could cause prices to reach bottom by next year, leading the market into a slow recovery, analysts with the firm said.

"The economy continues to grow with economic indicators on a positive trajectory and pointing to a recovery," Fitch said. "But struggles remain. High unemployment, a declining labor force, stagnant wages, and a large delinquent inventory across many parts of the country are slowing the recovery's momentum."

States like Arizona and Michigan, which were hit with hefty price declines, are starting to see a turnaround, Fitch asserted.

Arizona saw small quarterly gains for the first time in two years in the most recent report and Michigan is beginning to stabilize, the study suggested.

While those markets stabilize, prices are falling in the Northeast as inventory backlog starts to move onto the market. Fitch says New Jersey and New York alone have watched prices drop 10% and 7%, respectively, over the past five quarters. The ratings giant expects further drops in those states in the coming months.

The state of Georgia also became an interesting case study for Fitch, with the ratings giant reporting that home prices in the state are now 32% lower than 2000 levels. However, Georgia is very much a divided state with the affluent northern suburbs of Atlanta and central city area holding onto their values and the overall economy collapsing to the city's south.