Foot traffic, the number of times a property is shown to potential homebuyers, is a strong indicator of housing demand and future home sales. Each month NAR Research publishes a diffusion index for foot traffic, but recent efforts have expanded on this work to create other indexes. NAR Research is likely to continue to exploit this rich source of information.
Tracking Home Showings
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. This data has been culled for several years to create NAR’s diffusion index of foot traffic.
The diffusion index aggregates the number of markets that have experienced traffic that is stronger, weaker, or unchanged from a year earlier. A reading of “50” indicates that on average markets are unchanged from a year earlier, while a reading greater than that indicates that on average markets experienced stronger traffic than a year earlier. While useful, this measure provides no insights as to the magnitude of any change.
A new volume index for foot traffic was created by aggregating the total traffic each month from a panel of REALTOR® boards from across the United States. The aggregate volume data is then seasonally adjusted and annualized (SAAR). By seasonally adjusting the volume data, typical fluctuations from winter to summer are accounted for so that one month can be compared to the next. Annualizing the data allows one to compare the trend over a longer period.
Foot traffic based on the volume index rose 4.1 percent in July compared to June. Relative to July of 2016, traffic was up just 1.2 percent, but that was the first year-over-year gain in nearly six months. The steady downward trend in inventory has taken a toll on foot traffic.
As depicted above, a one-period lag of the foot traffic index (SAAR) tracks the trend for existing home sales (SAAR) closely. In fact, a simple regression of foot traffic from the current and prior two periods on existing homes sales shows a high degree of explanatory power with an r-square near 0.9, or nearly 90 percent of the variation in sales accounted for by variation in current and past foot traffic.
Paths Diverge, and Come Back Together
However, the foot traffic measure does not always track existing home sales well. When inventories are high, an individual consumer may view a property multiple times. In a tighter market with quick offers and a short time-on-market, she may only view a property once, while in an extreme case, a homebuyer may not even view the property before making an offer. Thus, shifts in the relationship of supply to demand can cause the trend in these two measures to diverge temporarily. Periods that cause a sudden increase in demand, like a sharp drop in mortgage rates or the homebuyer tax credits of 2009 and 2010, are examples of this phenomenon.
Finally, another factor that could cause a divergence is the makeup of the two indexes. Different panels are used to construct each series and thus they will include different local markets. Likewise, the existing home sales series is much older and the seasonal factors may differ as a result.
NAR Research has used foot traffic to gauge market trends for several years even at the local level. The new foot traffic volume index will add more color and understanding of current market dynamics. It also has potential for use in forecasting and providing insights at the local level. Foot traffic will continue to provide new measures, insights, and analytics in the years ahead.