The housing market has shown marked signs of improvement through the first five months of the year, potentially helping boost consumer spending, which, in turn, could create a greater need for inventory financing.
If the improving housing market leads to consumers spending more at retailers, small-to medium-sized businesses could need financial assistance to replenish inventory as sales pick up.
One major factors that could aid many U.S. consumers is the fact that 850,000 homeowners returned to positive equity in the first quarter, according to CoreLogic.
"The impressive home price gains of 2012 and the beginning of 2013 have had a big impact on the distribution of residential home equity," said Mark Fleming, chief economist for CoreLogic. "During the past year, 1.7 million borrowers have regained positive equity. We expect the pent-up supply that falling negative equity releases will moderate price gains in many of the fast-appreciating markets this spring."
As more borrowers get above water on their mortgages, they may see their personal financial situations improve, potentially leading to additional spending at retailers.
Second quarter home price gains could help more homeowners get above water
Home price gains continued in April, which may help additional property owners return to positive equity.
CoreLogic's April Home Price Index increased 12.1 percent on a year-over-year basis, and 3.2 percent when compared to the previous month. This was the largest annual improvement since February 2006, and the 14th straight monthly increase in national home prices.
Moving forward, the Pending HPI projects prices will rise by 12.5 percent annually in May, and 2.7 percent from April, furthering the potential for homeowners to get above water on their home loans.
"The pace of the housing market recovery quickened in April as home prices rose across the U.S.," said Anand Nallathambi, president and CEO of CoreLogic. "For the second consecutive month, all 50 states registered year-over-year home price gains excluding sales of distressed homes. We expect this trend to continue, bolstered by tight supplies and pent up buyer demand."
Nevada led the way with home price appreciation of 24.6 percent, followed closely by California, Arizona, Hawaii and Oregon – all with increases greater than 15 percent.
Easing foreclosure situation could further help consumer activity
Another issue that has bogged down consumer spending in many areas of the country has been foreclosures. However, the past year has seen this problem ease.
Despite rising slightly from the 75-month low seen in April, foreclosure activity in May was still down 28 percent from the same time a year ago, according to RealtyTrac's U.S. Foreclosure Market Report.
The monthly bump in activity was caused by an 11 percent increase in bank repossessions during May, but REO activity was down 29 percent year-over-year.
Daren Blomquist, vice president at RealtyTrac, said that the surging housing recovery is strong enough to shake off these slight increases so there isn't much to worry about.
As the housing market continues to show signs of recovery, consumers may feel more comfortable about spending in the near future. Should this translate to higher retail sales levels, small- to-medium sized business could have a need for inventory financing.
This type of asset-based lending allows a company to use current inventory as collateral to obtain a revolving line of credit.
When sales pick up, the need to replenish inventory could arise. Smaller companies often struggle to finance these purchases on their own, and can find it difficult to be approved for a loan from a bank, which is where inventory financing becomes beneficial.