The housing market recovery has been one of the U.S. economy’s brighter stories this year. Now, Fitch Ratings says that the recovery is even better than we thought.

In its latest research on the U.S. housing market, the ratings agency says:

In a slowly growing economy with somewhat diminished distressed home sales competition, less competitive rental cost alternatives, and new home inventories at historically low levels,single family housing starts should improve about 19%, while new home sales increase approximately 19.5% and existing home sales grow 8.5%. Further moderate improvement is forecast for 2013.

Fitch also raised its forecast for home prices, saying that average and median new home prices will both rise 3.2% in 2012 and 2.5% in 2013.

Of 13 U.S. homebuilders, Fitch rates only NVR Corp. (NYSE: NVR) as investment grade, with a ‘BBB+’ rating. Toll Brothers Inc. (NYSE: TOL) and MDC Holdings Inc. (NYSE: MDC) get a ‘BBB-’ rating from the agency, and Lennar Corp. (NYSE: LEN) nabs a ‘BB+’ rating. The lowest rating goes to Hovnanian Enterprises Inc. (NYSE: HOV) with a ‘CCC’ rating.

Fitch did not that ratings outlooks for all the publicly traded homebuilders except Hovnanian are ‘stable’ and D.R. Horton Inc. (NYSE: DHI) even gets a ‘positive’ outlook.

The Fitch report is available here.

Paul Ausick