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Fitch expects home renovation trend to improve

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October 4, 2013 01:43 PM EST | AP

CHICAGO — CHICAGO (AP) — Fitch Ratings said Friday that rising optimism among U.S. homeowners may mean that they will moderately increase their spending on home renovation projects through 2014.

The rating agency projected that home-improvement spending will increase 4 percent in 2013 and grow 5 percent next year as the housing market continues its recovery.

Fitch said that there are still challenges ahead that could derail a rebound — unemployment is still high, credit remains tight and consumer confidence has not fully recovered. Rising mortgage rates could also slow down the number of refinances in which homeowners cash out, limiting their ability to finance large projects. But the rating agency remained optimistic that this is trend is on the upswing.

Homeowners' optimism is up on the improving housing market and strong home price gains.

Sales of existing homes increased 11.7 percent in the first eight months of the year, while new home sales improved 20.4 percent, according to Fitch. And home prices have increased since early 2012. The median existing home price in August of 2013 was $212,100, up 14.7 percent compared to August 2012.

Additionally, Fitch said that the return on investment for remodeling has finally turned a corner. That means that consumers may feel more confident spending on remodeling projects, knowing that they may recoup those costs when they sell. This has been helped by lower construction costs and improved home resale values.