AccuVal has historically observed a strong correlation between the housing market and the retail market for home-related products. As furniture and similar items are considered by most to be a major purchase, many consumers will consider purchasing these items when already seeking long-term financing in the form of a new mortgage; or in conjunction with home improvement or renovation products, which are typically funded through mortgage refinancing or home equity loans. Since new mortgages, refinancing, and home equity loans are tied directly to federal interest rates, the activity of the Federal Reserve over the past six years has spawned a significant increase in these transactions.
In the years from 2000 to 2005, the US housing market experienced price increases of up to 40% annually, depending on the region. As a result, furniture and home improvement retailers increased their presence in the nation's real estate "hot beds" in an attempt to capitalize on the additional spending in these markets.
Beginning in the latter half of 2005, however, the housing market began to slow amid increasing interest rate changes by the Federal Reserve. The impact of the interest rate increases varied by region, but, generally speaking, the regions of the country which had seen the largest gains are now experiencing the most significant slow-down in activity. Recently this trend has been further exacerbated by the woes of the sub-prime mortgage sector, leading to tighter credit restrictions in the mortgage market. The result is that less people will qualify for mortgages or refinancing. The impact to retailers is fewer customers looking for home-related products.
Retailers that operate in the real estate "hot-beds" of the previous years are facing the most competition. The housing boom in these markets created additional demand, which spawned additional competition. As a result, retailers in these markets are currently faced not only with a struggling housing market which is impacting their business but also with increased competition which materialized during the housing boom.
If your portfolio contains manufacturers, wholesalers, retailers, or distributors in any of the following industries, it may be time to have AccuVal appraise the value of these assets given the current challenges in the marketplace: