Latest Diffusion Index of Foot Traffic

Every month NAR Research monitors foot traffic in roughly 160 markets across the country. The number of visits to actively listed homes has a strong correlation with future trends in contracts and closing for home sales. After a sharp decline in year-over-year growth of foot traffic last month, the trend shifted toward stabilization in September. This month’s measure is a more clear indication of the impact of mortgage rates on consumer interest in home purchases.

Every month SentriLock, LLC. provides NAR Research with data on the number of properties shown by a REALTOR®. Foot traffic has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two to three months into the future. For the month of September, the diffusion index for foot traffic rose 26.3 points to 50.6.

Mortgage rates rose sharply in the late spring, but stabilized by August and drifted modestly lower in September after the Federal Reserve’s Open Market Committee announced that it would not taper its purchases of mortgage backed securities. The stabilization pattern in rates helped, but the strong traffic pattern suggests that there is more robust demand in the market place.

This month’s reading partially offsets the previous sharp decline. The index inched just above the important “50” mark in August, which indicates that more than half of the markets in this panel had stronger foot traffic in September of 2013 than the same month a year earlier. This reading does not suggest how much of an increase in traffic there was, just that the majority of markets experienced more foot traffic in September of 2013 compared to a year earlier.

The figure for August was partially influenced by the abnormal strength of traffic in August of 2012. Consequently, this month’s figure more actually depicts the impact of the increase in mortgage rates and tight inventories. On a metro level, many of the markets that shifted to a decline in the last reading either were modestly positive this month or had a much smaller year-over-year decline compared to last month. This trend suggests a leveling off in traffic. Tight inventories, higher mortgage rates or a combination of factors are driving this pattern.

Foot traffic shifted toward recovery in September after the sharp decline in August. This month’s reading is a clearer picture of the impact from higher mortgage rates and tight inventories as last year’s abnormal end-of-summer strength abates. The decline in rates over the last three weeks may help to ease some buyer anxiety and to preserve affordability in the near term, but rates are likely to rise over the winter and into the spring of 2014.

Ken Fears, Director, Regional Economics and Housing Finance

Ken Fears is the Manager of Regional Economics and Housing Finance Policy. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.

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