Home Values Rising Again?

Here's another "rising home values" article. Notice the same theme about how you "feel wealthier" if the value of your home rises.

Onno Koelman, a 32-year-old engineer, is among those feeling better about his personal finances and spending more.

I've been seeing the same logic applied to the stock market for years. The idea there is that if the price of your stocks goes up, you'll "feel wealthier" and that will make you spend more. It's called the "wealth effect." But I've yet to find any hard evidence that this "wealth effect" is real. All I've seen are studies that show that peoples' spending rises something along the lines of 0.03% - 0.05% - hardly anything to write home about.

So this guy Koelman feels better and actually spends. But wait, the article tells us this:

...the couple is spending money on home improvements rather than paying off hefty student debts.

Notice how they have "hefty" student loans. But instead of paying down their debt, they're spending money on home improvements. I don't know their whole personal financial picture, but you have to wonder why they're spending money when they have hefty student loans. The other thing is, are they spending money they've earned, or are they running up even more debt to fund they're home improvements?

But no worries here. We're assured by an economist that this will all lead to economic recovery:

Rising home values are "very helpful," said Harm Bandholz, chief U.S. economist at UniCredit Bank, who estimates that stabilizing home prices could boost America's gross domestic product in 2012 by more than half a percentage point. "I think the fundamentals for a stronger pickup in consumer spending are in place." 

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You know, I'm feeling better already about things. I think I'll go out and spend some money.