Home Equity Boom was Good For Retail Sales
The last few years have created a situation where consumers had plenty of cash (or available cash) to spend. Home equity financing was generally growing and this created a situation where many homeowners tapped into their equity to fuel spending. In 1995, the lowest levels since 1993, the total cash out equity was approximately $11.2 billion. This grew to $243 billion in 2005, although it is expected to drop off for 2006 and 2007 based on the Freddie Mac data.
I wondered what the future may hold for the retail market and since we all know retail is tied to household spending, I thought it would be interesting to correlate the two. Consumer spending accounts for about two-thirds of US economic activity so it is a critical element to understand.
A new report entitled: “U.S. Online Retail Forecast, 2005 to 2010,†by Jupiter Research forecasts that online retail spending will increase from $81 billion in 2005 to $95 billion in 2006, and will grow to $144 billion in 2010. According to this report, the key driver of online sales growth beyond 2006 will shift from obtaining new buyers to increasing the spending of existing buyers.
By 2010, 71% of online users will use the Internet to shop compared to 65% in 2005, however, online retailers will find it difficult to find new non-buyers to convert. Online retailers will rely heavily on existing online shoppers to spend more than compared with previous years.
The report also reveals that the Internet will influence nearly half of total retail sales in 2010, compared to just 27% in 2005. This projection combines total sales transacted online with those carried out off line but encouraged by online research. These offline sales will grow at a faster rate than online sales over the next five years.
Will there be money available for all this shopping?
I reviewed data available from Freddie Mac and a website called economy.com to develop the following graphic. It does appear that as cash-out financing goes so does the rate of retail spending. For a large graphic left-click the image.
