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July home price gains could fuel household wealth

Sep 28, 2013 Philip Burgess

Consumer spending has been up and down this year, but with recent home price gains, household wealth may rise, potentially spurring future expenditures. As a result, short term lending demand might jump in the coming months.

Both the 10- and 20-city composites posted gains in July, with increases of 1.9 percent and 1.8 percent, respectively, according to the Standard & Poor's/Case-Shiller Home Price Indices. When compared to a year ago, the 10-city measure jumped 12.3 percent, while the 20-city index was up 12.4 percent - the largest bump in more than seven years.

"Home prices gains are holding their 12 percent annual rate of gain established by the two Composite indices in April," says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. "The Southwest continues to lead the housing recovery. Las Vegas home prices are up 27.5 percent year-over-year; in California, San Francisco, Los Angeles and San Diego are up 24.8 percent, 20.8 percent and 20.4 percent respectively."

Brian Jones, senior U.S. economist at Societe Generale, told Bloomberg that rising mortgage rates could hold back future gains, but rates actually reversed in mid-September, so that stall could be short lived.

Consumer spending likely jumped in August
It appears as though July price gains may have impacted consumers in August, as economists surveyed by Bloomberg expect a 0.3 percent increase in spending with demand for autos reaching a near six-year high.

"People are a little more encouraged about the job market, which is getting gradually less bleak," Scott Brown, chief economist at Raymond James & Associates, told the news source. "It's a general trend of improvement we're seeing in the economy."

Short term lending demand could pick up with spending
Generally, when consumers spend more money, it is because they feel more confident in the economy and their personal financial situations. However, this doesn't mean they are immune to money problems, as an unexpected expense can arise at any time.

In such a situation, short term lending could prove beneficial, as consumers may otherwise fall short on the essentials, such as the credit card or utility bill. Unfortunately, these loans have a stigma, and have been attacked due to high rates and fees.

But, the cost incurred during the few weeks the loan is open is often much less than what people would be charged in late fees and penalties, so this could prove to be a beneficial option for many .