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Rising home values continue to fuel household wealth

Aug 29, 2013 Quinn Thomas

A boost to household wealth in the United States is typically a good sign for the borrowing market, as consumers tend to spend more. And that is exactly what is happening, with home values continuing to rise.

Should the increase to household wealth lead to more borrowing, short term lenders might want to prepare for an influx of applications.

Appreciation reaches near seven-year high in June
Home prices had another strong month in June, with the Standard & Poor's/Case-Shiller Home Price Indices revealing a 7.1 percent bump in the second quarter and a 10.1 percent year-over-year-improvement.

"National home prices rose more than 10 percent annually in each of the last two quarters," said David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. "However, the monthly city by city data show the pace of price increases is moderating."

All 20 cities measured showed monthly gains, with Charlotte, Cleveland, Las Vegas, Minneapolis, New York and Tampa seeing increased momentum. In fact, New York posted its strongest gain since July 2002.

Economists project consumer spending pick up
It appears as though June's home price appreciation may have helped fuel spending increases in July, with economists surveyed by Bloomberg projecting a 0.3 percent bump.

"We're seeing a little more weight from the consumer and housing sector," Michael Brown, economist for Wells Fargo Securities LLC, told Bloomberg.

Coupled with rising home values, faster job gains have helped consumers spend more money. Spending in the first three months of the year increased at an annualized rate of 2.3 percent followed by 1.8 percent in the second quarter.

With favorable conditions moving forward, there is a chance spending levels could continue to pick up throughout the end of the year, potentially creating more activity in the borrowing market.

Increasing household wealth is a good sign for short term lending market
Generally, when Americans come across more money, spending picks up. And when consumers spend more money, borrowing activity tends to follow suit. That being said, short term lending demand may rise in the coming months with favorable consumer conditions.

One instance where this type of lending could prove beneficial is if someone overextends themselves and then runs into an unexpected expense, such as a trip to the emergency room. A short term loan can help people cover their essential expenses while they regain their financial footing so they don't have to incur costly late fees and penalties on other bills.