Waning foreclosure situation could help boost retail spending

After the financial crisis, millions of homeowners became underwater on their home loans, which forced many to cut back on spending. 

Now that the housing market has made a slow but steady comeback, many of those homeowners have regained equity as the foreclosure situation has eased. With fewer foreclosures, consumer spending could jump, potentially leading to an increased need for retail inventory financing

April saw 52,000 completed foreclosures, according to CoreLogic's National Foreclosure Report. A year ago at this time, there were 62,000 completed foreclosures. While there is still some way to go before reaching pre-recession levels – 21,000 completed foreclosures per month between 2000 and 2006 – it is clear the market is moving in the right direction. 

In fact, the national foreclosure inventory is down 24 percent year-over-year to around 1.1 million homes. In April 2012, 1.5 million homes were in the national foreclosure inventory. 

"The shadow of foreclosure and distress continues to fade, with the annualized sum of completed foreclosures having declined for 17 straight months," said Dr. Mark Fleming, chief economist for CoreLogic. "Six states have year-over-year declines in the foreclosure inventory of more than 40 percent, and in Arizona and California the year-over-year decline is more than 50 percent."

Rising home prices have helped ease the foreclosure problem
One of the driving factors behind the foreclosure situation waning has been increasing home prices. 

U.S. home value appreciation exceeded 5 percent for the sixth straight month in April, which should help more homeowners avoid foreclosure in the future. 

The Zillow Home Value Index came in at $158,300 in April, a 0.5 percent bump from the previous month and 5.2 percent year-over-year improvement. 

"April marks the sixth straight month of annual home value appreciation of 5 percent or above, the longest such streak since the height of the bubble in 2006," said Zillow chief economist Stan Humphries. 

As fewer U.S. homeowners have to worry about foreclosure, consumer spending could pickup. Should this occur, small- to medium-sized retailers might begin to see additional business. 

With product coming off the shelves, these companies may run into the need to replenish inventory. However, this can be difficult for smaller businesses to do on their own, and they are often turned away by banks.

Inventory financing is available though, which allows retailers to use current product as collateral to obtain a revolving line of credit to be used to purchase more inventory.