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Falling negative equity rate could boost consumer spending

Nov 26, 2013 Philip Burgess

Following the financial crisis, home values were slashed, which forced millions of homeowners into negative equity - owing more money on their mortgages than their home is worth. As a result, many consumers pulled back on spending.

However, the negative equity rate has been steadily declining in recent months, which could put Americans in a better position to spend money. In fact, the third quarter saw the rate fall at the fastest rate ever, according to Zillow. The negative equity rate at the end of the third quarter was 21 percent, compared to 23.8 percent in the previous three-month period.

"Rising home prices and a greater willingness among lenders to engage in short sales have both contributed substantially to the significant decline in negative equity this quarter," said Zillow Chief Economist Dr. Stan Humphries. "We should feel good that we're moving in the right direction and at a fast clip."

Some areas of the country are still seeing a high negative equity rate. For example, 39.6 percent of homeowners with a mortgage in Las Vegas are underwater. But, with the holiday season upon us, chances are people in Sin City will still increase expenditures.

Short term lending demand may rise in the coming months
Though they may not know it at the time, consumers could be opening themselves up to future financial troubles by increasing spending in the final months of the year. For this reason, people should avoid stretching their budget too far, but that isn't always possible.

Anyone who faces an unexpected expense following the holidays could be at risk of falling short on certain essentials, such as rent or utilities. Missing one of these payments could lead to costly late fees and penalties. Consumers who want to prevent such a situation might want to consider short term lending.

Obtaining this type of financing can help people stay current on all bills no matter what type of troubles they face. Generally, these funds are disbursed quickly and are required to be paid back after about a week or two.

In recent months, short term lending has come under fire, but people need to consider both sides of the story. The cost of late fees and penalties are often more than what is charged to secure a short term loan, so this could prove beneficial for many.