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Growing home equity levels could lead to more spending, borrowing

Jul 03, 2013 Quinn Thomas

In the aftermath of the financial crisis, millions of homeowners saw the value of their homes slashed, which held back consumer spending for many years.

However, many of these property owners have begun to return to positive equity, potentially leading to more spending and borrowing activity. As a result, short term lending could be increasingly utilized in the near future.

An additional 850,000 residential properties returned to positive equity in the first quarter of 2013, according to CoreLogic. This could help improve the financial situations of these Americans, as they no longer have to fear foreclosure.

"The negative equity burden continues to recede across the country thanks largely to rising home prices," said Anand Nallathambi, president and CEO of CoreLogic. "We are still far below peak home price levels, but tight supplies in many areas coupled with continued demand for single family homes should help us close the gap."

Home prices have continued to climb in the first month of the second quarter, which could help bring more homeowners into positive equity. Zillow reported home value appreciation exceeded 5 percent for the sixth consecutive month in April.

"April marks the sixth straight month of annual home value appreciation of 5 percent or above, the longest such streak since the height of the bubble in 2006," said Zillow chief economist Stan Humphries.

Meanwhile, the Home Value Forecast projected prices will rise 4 percent in the 12 month period ending April 2014.

As more and more homeowners regain positive equity in their properties, they may begin to show renewed faith in the state of the economy. As a result, short term lending and other credit activity could increase in the coming months.