Why do rising house prices cause an increase in aggregate demand?

An increase in house prices will increase the wealth of house owners. Knowing that their asset is worth more, house owners will have more confidence to borrow, spend and take risks, this is known as the wealth effect. The formula for aggregate demand is C + I + G + X - M so if consumer expenditure increases (as a result of the wealth effect), aggregate demand will increase. This will be graphically represented by an outward shift in the AD curve.
Furthermore, the multiplier effect will lead to subsequent increases in aggregate demand. In this case, firms will gain more revenue as consumers spend more on goods and services. These firms will keep a percentage of this extra revenue as profit but will also invest a percentage of this extra revenue, causing a further increase in aggregate demand.