The weak U.S. housing environment , a weaker economy (and an increased risk of a U.S. recession) and tighter credit standards have and will continue to take a toll on home improvement spending, according to Fitch Ratings in a new report.

Home improvement spending is influenced to a major degree by new and, especially, existing home turnover, albeit on a lagged basis. Thus, with fewer homes being sold, home prices declining, expensive building materials, lower homeowner equity and higher interest rates on home equity loans, consumers scaled back spending on housing renovations in 2007.

'Increasing uncertainty about income prospects and job security, as reflected in the weakening of consumer confidence indicators, is also likely to take a toll on consumer spending,' said Managing Director and lead homebuilding analyst Robert Curran. 'Employment growth has been a key support to the consumer outlook in the face of pressures from the housing market and debt servicing, and the volatility and deterioration comes just as these other pressures are intensifying.'

Various national house price measures are now showing sizeable annual declines in nominal terms, which will reduce net wealth and further reduce possibilities of home equity extraction. 'Although interest rates have declined so far in 2008, tighter lending standards are also expected to contribute to reduced home equity extraction this year,' said Director Robert Rulla.