Home Improvement Faces Long, Hard Slog

The home improvement sector is expected to drop this year after declining for the second straight year in 2008, according to a report released on Thursday by Fitch Ratings.
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The home improvement sector is expected to drop this year after declining for the second straight year in 2008, according to a report released on Thursday by Fitch Ratings.

This does not bode well for home furnishing retailers

Home Depot

(HD) - Get Report

and

Lowe's

(LOW) - Get Report

, both of which reported better-than-expected earnings last week. Other companies that could be affected are

PPG Industries

(PPG) - Get Report

, the supplier of coatings, glass, fiberglass and chemicals; pain and coating maker

Sherwin-Williams

(SHW) - Get Report

,

Masco

(MAS) - Get Report

and

Black & Decker

(BDK)

.

"Consumers are not spending as much on home remodeling with new and existing home sales at record lows and home prices continuing to plummet," Robert G. Rulla, CFA at Fitch Ratings wrote in the note. "The weak economy, combined with mounting job losses and poor consumer confidence, has also taken a toll on overall spending. In addition, with the credit markets still tight, the prospects for home improvement spending, at least through 2009, remain challenging."

The Home Improvement Research Institute estimates the size of the home improvement products market to be about $290.5 billion in 2008, down 4.5% over the estimated $304.3 billion in 2007.

While consumers may be picking up smaller do-it-yourself items like paint and garden seed, they are shying away from big ticket purchases a major remodels.

"In particular, eco-friendly and energy-saving projects are gaining popularity among consumers," Rulla wrote.

According to the Cost Versus Value survey conducted by

Remodeling Magazine

, the overall return for remodeling projects declined to an average of 67.3% of the investment in 2008, from 70.0% in 2007 and a peak of 86.7% in 2005.

There is, however, an upside, says the report. As more people stay home to save money, the trend may ultimately drive renovation spending, as homeowners feel the need to improve their surroundings.

Shares of Home Depot fell 4% to $22.89 in afternoon trading, while Lowe's lost 2% to end the day at $19.30.

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