For several years, NAR Research has tracked foot traffic as a means of predicting housing activity in subsequent months. This data provides valuable insights about future trends and points to a robust spring market.

SentriLock LLC., makers of the lock boxes that one-third of REALTORS® use to access properties on the market, provides data to NAR’s Research Department from more than 200 local boards and associations on the number of times properties are accessed each month. This data, in turn, is used by NAR Research to create a picture of foot traffic in various local markets and for the nation as a whole. This data is well correlated with pending home sales and existing homes sales in the subsequent two to three months.

NAR tracks this data in two ways.  First, NAR monitors the full sample of 200 boards and generates a diffusion index each month. This index indicates the share of markets that are experiencing stronger or slower growth in foot traffic relative to a year earlier. However, it does not inform about the magnitude of the change, so if 80 percent of markets are growing relative to last year, the total change could be just a 1 precent increase in volume. For a more detailed look, NAR produces a report each month focused on a panel of 10 metro areas.  This panel includes Indianapolis, Kingston (N.Y.), San Diego, Nashville, Chicago, Memphis, White Plains-NYC, Boulder, Iowa City, and El Paso.

Where is Traffic Headed?

After swooning in November, the diffusion index of foot traffic surged 20 points to 62 in December, finishing 2014 at the second highest level of the year. This reading suggests that well north of half of markets experienced stronger foot traffic in December of 2014 than in December of 2013. Furthermore, the share that experienced gains was in strong contrast to November when less than half of the markets covered experienced gains. The index started the year slow at just 19.5, but grew steadily and has been above the critical 50 mark since July with the exception of November’s decline.

Focusing on the 10-city panel, December saw a solid report. Eight of the markets in the panel increased on a year-over-year basis. The strongest improvements on a year-over-year basis were in Iowa City, Chicago and El Paso, respectively, which all experienced double digit gains over December of 2014. However, San Diego and Kingston (N.Y.) also experienced double-digit gains.  Boulder and Memphis were the only markets still experiencing lower traffic relative to 2013.

Nevertheless, all 10 markets saw an improvement in traffic when comparing the year-over-year trend in December relative to November. Iowa City, White Plains, and Kingston led the month-to-month improvement in the year-over-year trend.

Looking to the Spring Market

Foot traffic patterns tend to lead trends in contracts to sell and closed contracts (e.g. actual sales).  The trend from December suggests a steady gain in sales relative to last year for the early spring market. This improvement is both broad-based as measured by the diffusion index and regionally diverse judging by the 10-city panel. 

This month’s sharp improvement in foot traffic reduces concern over last month’s downward flutter, and aligns with the strong recent series of positive economic indicators. Lower mortgage rates and stronger employment combined with strong interest in housing point to a solid spring market. However, credit access, slow income growth, and supply constraints remain headwinds to a robust recovery. Regardless, foot traffic suggests steady improvement in early 2015.

The mortgage market was buffeted by a number of changes in 2013 and 2014; among them, higher fees at the Federal Housing Administration (FHA) and changes to underwriting as required by the Ability- to-Repay (ATR) and Qualified Mortgage (QM) Rules. In April of this year, NAR Research conducted its second Survey of Mortgage Originators. This second installment queried a sample of mortgage lenders about the actual impact of the ATR/QM rule three months after implementation, in addition to questions about the impact of changes to the FHA program. 

Ken Fears is Director, Regional Economics and Housing Finance, for the National Association of REALTORS®.