Housing wealth is widely distributed – much more so than stock market wealth, for example – and thus has an important influence on aggregate demand which, in turn, has an effect on inflation. Furthermore, there can be a "financial-accelerator effect" associated with rising house prices.
When the value of a house rises, the owner can typically borrow against this increased equity to fund home renovations, a second house, or other goods and services [chart: Home Equity Withdrawal and Home Renovations]. 2 These expenditures can "accelerate" a rise in house prices, reinforcing the rise in collateral values, access to additional borrowing, and thus a rise in household spending.