Inventory financing demand may rise with homeowners returning to positive equity

Consumers are the driving force behind the U.S. economy, and for a few years following the recession, Americans weren't spending. But, now that conditions have improved, retailers may want to prepare for additional sales. 

Should activity at small- and medium-sized retailers pickup, inventory financing may be needed as product flies off the shelves. 

Part of the reason consumers weren't spending was because so many were struggling with their homes. In fact, millions fell underwater on their mortgages as property values were slashed during the recession. However, many have regained positive equity in recent years, potentially increasing household wealth and spending power. 

In the second quarter, 2.5 million Americans got above water on their home loans, bringing the total number of homes in the U.S. with positive equity to 41.5 million, according to analysis from CoreLogic

"Equity rebuilding continued in the second quarter of this year as the share of underwater mortgaged homes fell to 14.5 percent," said Dr. Mark Fleming, chief economist  for CoreLogic. "In just the first half of 2013 almost three and a half million homeowners have returned to positive equity, but the pace of improvement will likely slow as price appreciation moderates in the second half."

Home value appreciation could aid more Americans
The third quarter could prove to be another positive period for homeowners, as appreciation remained strong. According to the July Zillow Real Estate Market Reports, home values were up 6 percent annually for the first time since 2006. 

All 30 of the largest metro areas in the U.S. posted monthly and annual gains, with Sacramento having the best July with a 33.1 percent increase, followed by Las Vegas and San Francisco. 

"After three straight months of annual home value appreciation above 5 percent, the U.S. housing market recovery has proven it is on very sound footing," said Zillow chief economist Dr. Stan Humphries. "We have entered a new phase in the recovery when we can begin to turn away from ugly recent history and turn toward what the housing market of the future will look like and how it will act."

In the next year, appreciation is expected to remain strong, with the Zillow Home Value Forecast projecting a 4.8 percent growth rate in the 12 month period ending July 2014. 

Increased spending could spark inventory financing demand
Favorable consumer conditions can potentially lead to a pickup in retail sales, which may increase inventory financing demand among small- and medium-sized businesses. 

When sales rise, product is coming off the shelves, which generates a need for replenished inventory. At first, retailers may turn to a bank to fund this purchase, but smaller companies are often turned away due to limited available capital or poor credit. 

If a bank tells a business "No," inventory financing can be utilized. This form of asset-based lending provides retailers with funds through a revolving line of credit that can be secured using current inventory as collateral.