For the second consecutive month foot traffic as measured by NAR’s Research diffusion index for foot traffic fell sharply. While bad weather may have played a role in this trend, the effect is widespread and significant. This movement suggests that the year-over-year decline in existing home sales, which was just 0.6% in December, is likely to soften further in January and February ahead of the spring market. A slowdown in demand would help to buttress inventories which are at 5-year lows, moderating price growth.
Every month SentriLock, LLC. provides NAR Research with data on the number of properties shown by a REALTOR®. Lockboxes made by SentriLock, LLC. are used in roughly a third of home showings across the nation. 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 January, the diffusion index for foot traffic fell 10.1 points to 17.6 after declining 21.1 points in December.
The index is well below the “50” mark which indicates that more than half of the roughly 200 markets in this panel had weaker foot traffic in January of 2014 than the same month a year earlier. This reading does not suggest how much of a decrease in traffic there was, just that the majority of markets experienced less foot traffic in January of 2014 than 12 months earlier.
This trend is significant, but relatively new. Higher mortgage rates combined with two years of steady price growth have weigh on affordability. Affordability is still strong by historical standards, but bidding wars, tight credit and lingering sequester-related job uncertainties have weighed on consumers. A rise in inventories would help to normalize the market, but given that sound underwriting is in place with the new qualified mortgage rule, a loosening of credit overlays would also benefit the spring market.