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Home price appreciation could fuel household wealth

Oct 03, 2013 Philip Burgess

Homeowners have had a strong couple of months, with appreciation boosting the value of their properties. As a result, household wealth may increase, potentially leading to a pick up in consumer spending.

Should expenditures increase, Americans may open themselves up to financial troubles, which is why short term lending demand may rise.

Home price appreciation strong in August
Though gains slowed a bit from the previous month, prices still increased in August - a positive for homeowners. Nationally, the CoreLogic Home Price Index (HPI) report revealed a 12.4 percent year-over-year jump and a 0.9 percent bump from July.

Nevada posted the strongest level at 25.9 percent, followed by California, Arizona, Wyoming and Georgia. Meanwhile, no state experienced depreciation.

"After a strong run, the rate of home price appreciation slowed in August. In addition to normal seasonality, the recent sharp rise in mortgage rates off their historic lows was a clear driver behind the slowdown," said Anand Nallathambi, president and CEO of CoreLogic. "We anticipate moderate gains in home prices over the balance of this year, supported by the recent downward trend in rates and continued tight supplies of homes in many markets."

Looking forward, the Pending HPI projected a 12.7 percent year-over-year increase in September, and a 0.2 percent monthly gain.

Consumer spending increases in August
With incomes picking up, Americans spent more money in the final full month of summer. According to the U.S. Department of Commerce, household purchases were up 0.3 percent in August, while incomes increased 0.4 percent - the most in six months.

In addition to higher incomes, rising home values and stock prices helped boost net worth, which has given people the means to spend more money despite the fact that payroll taxes jumped this year.

Russell Price, senior economist at Ameriprise Financial, told Bloomberg that a stronger employment situation could provide consumers with even more confidence, but the improvement in wages and salaries is encouraging.

Short term lending demand could rise in the coming months
As consumers begin to increase expenditures, the risk of financial troubles becomes higher. For example, after purchasing a new car, an unexpected expense could be crippling. It doesn't have to be though, as short term lending can provide people with the financial relief needed to get trough such a situation.

After experiencing a surprise cost, consumers could be in jeopardy of falling short on certain essentials. As a result, late fees and penalties might be incurred, which can be costly. But, with the help of short term lending, these can be avoided. This type of loan provides funds quick, so people can stay up-to-date on all monthly bills.

Short term lenders have come under scrutiny in recent months due to the high fees that are often charged. But, in reality, the cost to obtain one of these loans is often less than what people would have to pay if they miss a payment, so it can be beneficial for many.