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Declining negative equity rate could boost spending, borrowing

Sep 04, 2013 Philip Burgess

Conditions have been favorable for Americans in the past couple of months, and with more homeowners regaining equity lost after the financial crisis, household wealth could rise and boost spending and borrowing activity.

That said, short term lenders might want to prepare for increased demand, should any consumer who picks up spending run into an unexpected expenses that lead to the risk of falling short on essentials.

Negative equity rate declines for fifth straight quarter in Q2
With home values steadily rising, the negative equity rate dipped to 23.8 percent in the second quarter. According to the Zillow Negative Equity Report, around 12.2 million homeowners with a mortgage were still underwater, down from 13 million in the previous three-month period and 15.3 million a year ago.

"Widespread rising home values during the past year have helped chip away at negative equity nationwide, helping many homeowners who were only modestly underwater to come up for air," said Zillow Chief Economist Dr. Stan Humphries. "For those homeowners who are deeply underwater, though, there is still a long row to hoe."

Despite the drop, many areas of the country still have nearly half of all homeowners underwater, including Las Vegas, Atlanta and Orlando. But that could change in the near future, as the Zillow Negative Equity Forecast, predicts an additional 1.9 million Americans could become more financially stable in the next year.

June home value appreciation ends Q2 on strong note
It should come as no surprise that Americans are getting above water on their mortgages, as home prices have been rising markedly. The CoreLogic Home Price Index revealed an 11.9 percent year-over-year bump in June, and a 1.9 percent month-over-month gain.

"The U.S. housing market experienced robust price appreciation during the first half of 2013 and our forecast calls for double-digit growth through July," said Anand Nallathambi, president and CEO of CoreLogic. "Despite their rebound of late, home prices remain reasonable in a historical context, with most states near peak affordability levels."

Rising household wealth could increase short term lending demand
When homeowners get into better standing on their home loans and see prices rise, household wealth goes up and spending could increase. As a result, short term lenders could see an influx of applications in the coming months, especially if many consumers run into an unexpected expense, such as a car repair, that could put them in jeopardy of not being able to pay their credit card or car payment.