Strong home value appreciation could fuel consumer spending

Consumers have had a difficult stretch in the past couple of months, but with home value appreciation reaching a seven-year high in August - bringing household wealth up - spending may rise in the near future.

Generally, when consumers increase expenditures, short term lending activity follows suit, so people at these financial institutions may want to prepare for an influx of applications in the coming months.

Home value appreciation strong in August
Nationally, values were up 0.4 percent when compared to July, and 6.6 percent year-over-year - the strongest annual gain since July 2006, when prices jumped 7.9 percent, according to the August Zillow Real Estate Market Reports.

In the next year, growth is expected to slow slightly, but will still remain strong. During the 12-month period ending August 2014, the Zillow Home Value Forecast projects a 5.2 percent year-over-year bump.

"August marked the end of one of the hottest summer home shopping seasons in years, as home value appreciation rates continued their rocket ride upward – perhaps dangerously so in some metro areas," said Zillow Chief Economist Stan Humphries. "Double-digit appreciation rates do help to lift homeowners out of negative equity and to entice sellers into a low-inventory environment, but this rapid growth is not normal and cannot and should not be expected to last."

The majority of the country is experiencing appreciation, with 85 percent of the 382 metro areas covered posted gains. The largest came in Sacramento, where values were up 34.1 percent. Las Vegas, Nev, and Riverside, Calif., also had high levels of appreciation.

Consumers could receive a boost
With improving household wealth, Americans could begin to feel more confident in the economy, which would be a welcome sign after a poor stretch in recent months.

The Bloomberg Consumer Comfort Index dropped to the weakest level in a year in September, as surging mortgage rates hurt confidence in the housing market. Additionally, the labor market has cooled off a bit.

"The decline in overall confidence is the result of a slowdown in the economy," said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. "This reflects rising rates and a deceleration in sensitive sectors like residential investment and home purchases."

As home value appreciation continues to remain strong, consumers could begin to feel more confident in the future of the economy. Two other factors that need to improve as well include job and wage growth to help encourage spending.

The labor market could see improvement in the near future, as initial jobless claims have been at a low level in recent weeks, potentially leading to a strong employment report for September.

Short term lending demand may rise
Should consumers begin to spend more in the coming months, short term lending demand may follow suit. Though Americans are seeing improved household wealth, they are not immune to financial troubles. In fact, when spending levels rise, the risk of falling short on certain essential expenses may increase.

For example, after making a major purchase, peoples' bank account balances may be down. So, if an unexpected expense - such as a car repair - follows shortly after, there may be a risk that a credit card or utility bill may be missed.

In such a situation, short term lending could prove beneficial. Instead of paying a bill late, this form of financing can provide money quick to stay up-to-date on all expenses. This prevents consumers from incurring costly late fees and penalties, which are often more than what is charged in interest and fees.