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Latest Diffusion Index of Foot Traffic

In no surprise, the sharp rise in mortgage rates from June through September had an impact on the market. The July and August readings of the diffusion index for foot traffic reflected the impact by way of a sharp decline. However, by September the decline had reversed course with slightly lower mortgage rates, making up some of the ground. This recovery trend was modestly extended in October suggesting a bottom or plateau at a strong level by recent standards.

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 October, the diffusion index for foot traffic rose 0.6 points to 51.2.

Mortgage rates ticked upward in the first half of October as MBS and Treasury prices fell in the buildup to the Federal debt limit, but were still down from the 4.5% to 4.7% levels seen in late summer. Furthermore, furlough and job uncertainties as well as financing issues due to the government shutdown should have impacted consumer sentiment. However, foot traffic inched upward for a second consecutive month contrary to some anecdotes. Inventories remain tight in some markets, which could limit the upside to foot traffic until additional nascent inventory comes to the market.

This month’s reading extended last month’s recovery. 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 October 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 October of 2013 compared to a year earlier.

The recovery in foot traffic appears to have taken hold suggesting a more steady market at a high plateau by recent historical standards through winter months. However, this month’s reading provides a clearer picture of the impact from higher mortgage rates as the modest decline in rates from the summer rates provided some lift to the market, even during potential disruptions from the government shutdown. A longer sustained period of mortgage rates north of 4.5% could have a stronger impact on foot traffic, contracts, and home sales.

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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