Declining negative equity rate could boost spending, inventory financing demand

Following the financial crisis, millions of Americans saw the value of their homes fall markedly. As a result, household wealth dropped, which led to a pullback in consumer spending. 

However, that trend has begun to reverse, which may generate higher spending levels – a welcome sign for small- and medium-sized retailers. When product comes off the shelves, there will be a need to replenish the stock room, which can be made possible via inventory financing

The second quarter marked the fifth consecutive time the negative equity rate declined. According to Zillow's latest Negative Equity Report, around 12.2 million homeowners were still underwater at the end of June, down from 13 million in the previous three-month period and 15.3 million a year ago. In the next 12 months, it is expected that an additional 1.9 million property owners will regain positive equity. 

"Widespread rising home values during the past year have helped chip away at negative equity nationwide, helping many homeowners who were only modestly underwater to come up for air," said Zillow chief economist Dr. Stan Humphries. "For those homeowners who are deeply underwater, though, there is still a long row to hoe."

Rising home prices aiding Americans
June proved to be another strong month for price appreciation, which likely helped more homeowners get above water in the second quarter. 

Nationwide, prices were up 11.9 percent year-over-year and 1.9 percent from May, according to the CoreLogic Home Price Index report. When Julys figures are released, there is expected to be a 12.5 percent annual boost and a 1.8 percent month-over-month gain. 

"In the first six months of 2013, the U.S. housing market appreciated a remarkable 10 percent," said Dr. Mark Fleming, chief economist for CoreLogic. "This trend in home price gains is moving at the fastest pace since 1977."

Inventory financing demand could rise with fewer homeowners in negative equity
With rising home prices bringing millions of homeowners above water, household wealth could improve, potentially leading to increased sales at U.S. retailers. 

As a result, inventory financing demand may jump as small- and medium-sized businesses need to ensure shelves remain full when sales pick up. This form of asset-based lending enables retailers to use current inventory as collateral to obtain a revolving line of credit, which, in turn, can be drawn from to purchase additional product.