Inventory financing market could receive boost from strong home price appreciation

Consumers have had a fairly strong year compared to what experts predicted in January, as many believed higher income taxes and the sequester would negatively impact Americans. 

Part of the reason for this is the fact that home price appreciation has been so strong, helping boost household wealth. As a result, spending at U.S. retailers has picked up, which can potentially translate into increased activity in the inventory financing market. 

July proved to be another strong month for appreciation, with the CoreLogic Home Price Index report revealing a 12.4 percent year-over-year improvement and a 1.8 percent monthly gain, marking the 17th consecutive month of annual increases. 

"Home prices continue to climb across the nation in July with markets hit hardest during the downturn leading the way," said Anand Nallathambi, president and CEO of CoreLogic.  "Nationally, home prices are now within 18 percent of their peak levels reached in April of 2006."

When figures are released for August, home price gains are expected to continue, with the CoreLogic Pending HPI projecting a 12.3 percent annual increase and 0.4 percent month-over-month bump. To close out the year, appreciation could slow, but homeowners should still experience the benefits of greater household wealth. 

"Looking ahead to the second half of the year, price growth is expected to slow as seasonal demand wanes and higher mortgage rates have a marginal impact on home purchase demand," said Dr. Mark Fleming, chief economist at CoreLogic. 

Retail sales tick up in July
A sign that higher home prices have, in fact, increased household wealth is the bump in retail sales during July. According to the U.S. Department of Commerce, retail and food services for July totaled a seasonally adjusted annual rate of $424.5 billion, up 0.2 percent from the previous month and 5.4 percent compared to a year ago. 

"We're seeing sales pick up in multiple categories – that's a promising sign that consumer spending might be a little bit stronger in the third quarter," said Michael Brown, an economist with Wells Fargo Securities LLC. "We've seen wage and salary growth continue to expand with the pace of employment. That's helped support some additional consumer activity."

Inventory financing demand could rise as home price appreciation continues
With consumers continuing to see improving household wealth, sales at U.S. retailers could increase further in the coming months. As a result, inventory may need to be replenished, and small- and medium-sized businesses would likely need some sort of financial assistance. 

At first, retailers may turn to a traditional bank for a loan, but smaller companies are often turned away due to limited available capital or poor credit. Fortunately, inventory financing is available to provide assistance. This form of asset-based lending enables small- and medium-sized businesses to use current product as collateral to obtain a revolving line of credit, which, in turn, can be drawn from to purchase additional inventory to keep shelves full at all times.