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Rising home prices could boost consumer spending, borrowing

Jul 29, 2013 Philip Burgess

Generally, when consumers spend more money, greater demand for borrowing follows. That said, with rising home prices potentially boosting spending, short term lending demand could pick up in the near future.

United States home price appreciation continued in May, with a 0.7 percent increase from the previous month, according to the House Price Index released by the Federal Housing Finance Agency. On a year-over-year basis, prices jumped 7.3 percent.

When compared to the previous month, the East South Central census division saw prices decline, while the South Atlantic Division experienced the largest increase at 1.8 percent.

Rising home prices are part of the reason consumer spending has been increasing. The Deloitte Consumer Spending Index in June was up slightly to 4.3.

"Strengthening housing and job markets can have a profound impact on consumers' ability and willingness to spend," said Daniel Bachman, Deloitte's senior U.S. economist. "Improvement has been slow but steady month to month, and both housing and employment have regained their footing since last year."

Should home prices gains continue into the second half of the year, spending and borrowing activity might improve further.