A new report from CoreLogic shows several positive trends in the housing market, including increases in construction employment and home improvement spending. However, the recent expiration of tax relief acts directed at distressed borrowers may slow down the rate of absorption of distressed inventory, with borrowers reluctant to pursue short sales.

According to the Bureau of Labor Statistics, construction employment rose 2.1 percent across the country in February, noted Molly Boesel, a CoreLogic analyst. That may seem like a modest increase, but "although these year-over-year increases look tepid, they are strong when compared to the period of double-digit decreases in construction employment from January 2009 to March 2010," she writes.

In addition, as borrowers regain their equity and interest rates continue to increase over the next few years, the incentive to stay in one’s existing home and finance home improvements though home equity lines of credit will likely increase relative to purchasing a new home or refinancing with cash out. This will be good news for the home improvement industry and mortgage lenders who focus on home equity lending, as both will benefit from the resurgent consumer demand.

CoreLogic also warns that the expiration of the Mortgage Debt Relief Act at the end of last year may be slowing down the rate of absorption for distressed property. The act prevented homeowners who sold their home in a short sale or received a principal reduction in a loan modification from facing steep tax bills. Without the prospect of such relief, homeowners may be becoming more reluctant to pursue short sales, preliminary data suggests. Short sales have been declining since 2012, and "this negative trajectory appears to have picked up pace in 2014, with short sales dropping 0.6 percentage points from 5.2 percent of total sales in December 2013 to 4.6 percent of total sales in January 2014," wrote CoreLogic analyst Kathryn Dobbyn. February’s percentage could be as low as 2.2 percent, though final numbers have not yet been calculated. Even if Congress decides to extend the act retroactively, the continued uncertainty could continue to put negative pressure on both the volume of short sales and principal reductions.