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Can't sell your home? How about remodeling

With the housing recovery still in limbo, home prices rising and credit and inventory still tight, homeowners are increasingly looking back at their own homes rather than looking to move up. Home renovation was hot in 2013, and despite a winter weather lull, hammers are flying again.

"Remodelers remain confident in the continued growth of the home improvement market," said Paul Sullivan, chairman of the National Association of Home Builders' remodeling group. "As we head into spring, the gradual rise in home equity levels will continue to help clients better afford to remodel their homes."

Worker laying flooring
Tilo | iStock / 360 | Getty Images
Worker laying flooring

The Riley family in northern Virginia is rethinking the way they live. With one child already in college and another leaving in the fall, you might think they'd be looking to downsize, but it's just the oppositebecause they expect the kids to move back in.

"For them to come back here, they're going to spend thousands of dollars a month on rent, so the idea was to build a suite downstairs for them to have their own space when they came back home and we had our own space on our own floor," said Julie Riley.

Read More What's wrong with housing?

Like so many others, frustrated by higher home prices and a limited supply of listings, the Rileys are choosing to renovate.

"The big trend is that people are redoing their house instead of moving," said Robert Menefee, CEO of FA Design Build of Fairfax, Va. "We've seen a big spike in business, especially in this first quarter. Seems to be a good amount of pent-up energy on the remodel side."

Last year, nearly 10 million homeowners came out from underwater on their mortgages, finally regaining some home equity. Along with the equity has come an increase in confidence in housing as an investment. That has helped more homeownership pull the trigger on a remodel, but they are, in general, still doing smaller, less expensive projects.

Read More Homeownership falls to 19-year low: Here's why

"You're still very nervous about overbuilding your neighborhood, putting more money in your house than you can get back if you're going to sell it," said Kermit Baker of Harvard's Joint Center for Housing and the American Institute of Architects. "So we're seeing for example not $125,000 kitchen remodels but $30-40-50,000 kitchen remodels."

Architects reported a jump in most sectors of remodeling in 2013, with additions and kitchen and bath renovations leading the surge. A survey by the firm Hanley Wood shows even minor kitchen and bathroom remodels recoup on average 82 and 73 percent of their values respectively in resale gains. Only projects by first-time home buyers, who are sorely under-represented in today's housing recovery, were weaker, as prices for both home and home renovations rose.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.