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Home improvement projects could rebound, but risks remain

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Home improvement spending in the U.S. could rise 4.5% this year and another 4% in 2013 as more homeowners stay put or revamp new property purchases, Fitch Ratings said.

An uptick in home improvement expenditures is based on analyst projections that the nation will experience modest gains in housing turnover activity.

Single-family housing starts are expected to rise 12% to 483,000 units in 2012, while new home sales and existing homes sales could grow 10.5% and 5.6%, respectively.

Multifamily starts also are expected to increase 25% to 223,000 units.

Still, risks to spending remain with unemployment levels elevated, consumer credit standards constricted and consumer confidence still weak compared to historical patterns.

Fitch cites data from the Home Improvement Research Institute, which says the home improvement products market experienced $269.4 billion in spending during 2011, up 3.8% from $259.5 billion for 2010.

Spending on big-ticket remodeling projects is likely to remain subdued with credit availability constrained, but smaller discretionary projects and purchases could occur.

Another restraint to big-ticket purchases or large renovations is tied to homeowner reticence over the fact that hefty improvement projects will not necessarily equate to positive investment returns.

In fact, returns on investment continue to fall with Remodeling magazine noting in a recent survey that the average return on investment for remodeling projects declined to 57.7% in 2011, down from 60% in 2010 and 63.8% in 2009, Fitch said.

The price of construction materials also is on the rise—another factor that could derail larger construction projects.

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