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Why An Increase In House Sale Prices
Make People Feel Richer And Spend More

An increase in house sale prices translates into an increase in consumer wealth
... setting off a chain reaction. This is because; a rise in housing sales and
home values generally has a positive affect on consumer spending, and
economic growth.

Consumer Confidence

An increase in house sale prices makes people feel richer. They have more
money at their disposal, with the flow on effect of an increase in consumer
confidence. Increased consumer confidence results in an increase in consumer
spending.

The Costs Of Increased Borrowing

An increase in consumer wealth also reflects in an increased demand for
re-mortgaging and restructuring of home loans. With increased real estate
market values, the homeowner can generally borrow more money by taking out
a bigger loan against the value of the property. The homeowner can take on
more borrowings, because they know they can always release equity from the
value of their home, if required. There are however, costs involved when
borrowing extra money.

Bad Decisions

This increase in the availability of credit can cause people to make bad
decisions. For example, it can be a bad idea to borrow against a house to pay
credit card, or other debt. Borrowing to pay living expenses is a sure sign of
living beyond one's means.

False Sense Of Security

Increased house sale prices can provide the homeowner with a false sense of
security. Although the homeowner may have the ability to borrow more money
against the property, they still need enough positive cash flow to meet the
required interest and loan repayments. Failure to do so has its costs and can
result in foreclosure.

Regular household budget reviews and careful financial planning is advisable
even in a buoyant market.

Inflationary Pressures

Rising house sale prices can also be inflationary. This occurs when increasing
house prices cause economic growth to be unsustainable. However, rising
house sales prices do not always cause inflation. If other components of
economic growth are increasing at a slow rate, house sale prices won't
necessarily cause inflation.

Review

There are positive and negative effects when house values and housing sales
increase. The important thing is to be aware of the trends in both the local and
national economy, and real estate market.

Please Note: This real estate article does not give financial or legal advice. When buying or
selling a home, or taking out a loan, or restructuring a loan -  ALWAYS seek proper legal and
financial advice. See disclaimer below.

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