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Is the ‘Wealth Effect’ Coming to You?

Published on Thursday - September 27, 2012

The ‘Wealth Effect’ is spreading and it could be coming to your city. Are you ready to cash in on the real estate investing opportunities it provides?

The ‘Wealth Effect’ is the rich feeling homeowners get thanks to seeing more equity in their homes.

Today, even barely being in the positive can seem like winning the lottery for many U.S. homeowners. It is this new wealthy feeling which is lifting consumer spending and is expected to compound the momentum of the housing recovery.

The lift being provided to consumer spending on a national level may be relatively small for now; 0.1% versus 0.9% per quarter in 2009 but it does signal a turning point in the economy.

We are now seeing the biggest gains in home values since 2006, with a nationwide 3.8% rise in the 12 months leading up to July 2012. However, many destinations are seeing 30% rises in local home values, lifting many out of being underwater for the first time in years. That’s big!

You can argue about the logistics of property owners being able to cash in on this new equity or even whether they should consider it in the first place but it is the comfort and security level this new found wealth provides which really makes the difference. If all of a sudden you go from no hope and a negative equity position to $150,000 in positive equity cushion you are feeling pretty good about those extra splurges, even if it is just McDonalds, a new skirt or a large iced coffee.

More spending means more money floating in the local economy, more confidence among business owners and eventually more hiring, which also improves affordability and room for home prices to grow. In turn this means more home buying and increasing property values.

This means increasing real estate investing opportunities. Investors are still able to scoop deals from those who are just grateful to be able to sell and pitch them on the retail market at rising premiums.

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