The rising value of US property is likely to encourage consumer spending and ultimately, give the economy the boost that it needs. The Bank of America Corp in New York forecasts a two percent gain in home values beginning the first quarter of 2013.
Based on the forecast, the wealth effect of the housing market will promise a growth of 0.1 per quarter. This is a turning point that has long been awaited in order to pull the entire US economy up. This increase is a good sign of expansion in the midst of a struggling labor market and a fluctuating manufacturing industry that could not support itself for three years – without outside help.
It must be recalled that for the past two years, the value of the housing market has remained to be all time low but with mortgage values on the rise. However, if the value of the housing market increases then it would have an indirect proportion-kind of relationship to mortgage; wherein as the value of the housing increases, mortgage decreases. For the second quarter of this year, the housing prices have increased by 2.2 percent with the lowest mortgage on record.
What Happens When Housing Prices Increase?
The 2012 forecast on the housing market says that it will grow stronger. Together with that, you can expect a stronger builder confidence. In fact, based on the latest report from the National Association of Home Builders has it that that the confidence of US homebuilders climbed this month, to a level that is the highest in more than six years.
CoreLogic Inc. says that as of July of this year, the sale of single-family homes have been at the highest since August of 2006.
When builder confidence is restored, more homes will be built or renovated. This will result in a phenomenon called the wealth effect. If this happens, homeowners will spend more as a result of an anticipation of changes over time. So for every one dollar increase in the housing price, consumers will adjust their spending by cents more. And remember that the consumer spending consists about 70% of the economy.
The Federal Reserve notes that the impact of the wealth effect will be widespread since American families consider homes to be a good part of their family assets. As a matter of fact, about 66 percent of US homes are occupied by their owners.
The increase in the home prices will also help families. Homes purchased for $200,000 have grown to a value equivalent to more or less $220,000 in just 5 months.
As for the mortgage, despite the decrease of mortgage costs, there are still families that would have difficulty paying for them on time. This is because despite the bettering health of the housing industry, the other factors of the economy remain to be the same – more or less.
So to provide immediate financial help, bad credit loans are made more easily accessible through online and offline companies. With the projected increase of the housing market in 2013, more will likely purchase homes and with that, more will need the help of bad credit loans to pay for the mortgage.