Continuing home value appreciation could boost household wealth, borrowing

When household wealth increases, consumers typically spend more money, which can also translate into increased borrowing activity. It appears as though this could be happening, with home value appreciation reaching a new post-recession high, so short term lenders might want to prepare for an influx of borrowers.

Appreciation hits seven-year high in July

Americans may feel more comfortable with their financial situations, as home value appreciation surged to 6 percent year-over-year in July - the first time it has reached this level since 2006, according to the latest Zillow Real Estate Market Reports. When compared to the previous month, values were up 0.4 percent.

"After three straight months of annual home value appreciation above 5 percent, the U.S. housing market recovery has proven it is on very sound footing," said Stan Humphries, chief economist at Zillow. "We have entered a new phase in the recovery when we can begin to turn away from ugly recent history and turn toward what the housing market of the future will look like and how it will act."

Home values expected to rise at least through 2017
With experts projecting continued appreciation, consumers may see further increases to household wealth in the coming years, potentially leading to even more borrowing.

More than 100 forecasters projected a 4.4 percent annual increase in home values for 2014, according to the latest Zillow Home Price Expectations Survey. Moving forward, gains of 3.6 percent, 3.5 percent and 3.4 percent are expected in 2015, 2016 and 2017, respectively.

"Short term expectations for home value appreciation through the end of this year are consistent with a nationwide housing market recovery that is both strengthening and widening, but still coping with high levels of negative equity, high demand and low inventory," said Zillow Senior Economist Dr. Svenja Gudell. "Combined, these factors will continue putting upward pressure on home values for the next few months."

Consumers spend more money in July
It appears as though the effects of rising home values are already impacting consumers, as spending at retailers picked up for the fourth consecutive month in July. Sales at U.S. retail and food services stores hit a seasonally adjusted annual rate of $424.5 billion, a 0.2 percent bump from the previous month and 5.4 percent annual gain.

"We're seeing sales pick up in multiple categories - that's a promising sign that consumer spending might be a little bit stronger in the third quarter," Michael Brown, economist at Wells Fargo Securities LLC, told Bloomberg. "We've seen wage and salary growth continue to expand with the pace of employment. That's helped support some additional consumer activity."

Short term lending demand may rise as consumers spend more
Should improving household wealth lead to heightened spending levels, Americans may increasingly turn to short term lending. One instance where this form of borrowing could prove beneficial is if a consumer overextends themselves and doesn't have the funds to cover an unexpected expense. Money obtained from a short term lender can be used to pay for a one time medical expense or car repair, among other things.

Short term lending has come under fire recently, especially in New York, but if used correctly it can be beneficial. One of the biggest gripes with this type of borrowing is the high interest rates, but with a term that usually lasts around two weeks, the interest accrued is typically less than what a consumer would have had to pay in late fees or penalties by missing a credit card or mortgage payment.