Economists' Outlook

Housing stats and analysis from NAR's research experts.

Diffusion Index of Foot Traffic: February 2013

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. In the latest reading, the diffusion index for foot traffic eased 6 points to 61.7 in February.

The decline in the index this month reflects tightening inventories in some markets, but also strong foot traffic trends in the early part of last spring. Despite the decline, the index remains in strong territory and was above the critical 50 mark for the 5th consecutive month. The 50 mark indicates that more than half of the markets in this panel had stronger foot traffic in February 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 the most recent month compared to a year earlier. Traffic in the mid-South, in particular Central and Southern Tennessee, picked up over the 12-month period ending in February.

Though the 12-month comparison of foot traffic eased from last month, traffic was strong last spring and was a leading indicator of what turned out to be the strongest early spring market in years. February’s figure suggests that this spring will be as strong or modestly better. Driving this trend are many of the same strong fundamentals: steadily improving employment growth, falling inventories, rising prices, and sub-4% mortgage rates. However, the key to an expanded housing market continues to be completion of regulatory reform in the housing finance market. Regulators recently completed the qualified mortgage rule (QM) which gave lenders some clarity on legal standards for lending. However, the Basel III capital standards will impact banks’ demand for loans with downpayments less than 20% and mortgage backed securities, while the qualified mortgage rule could crimp private investors' ability to fund loans with downpayments less than 20%. The combination would be a significant reduction of funding for the majority of home buyers. When the market gets clarity of these looming reforms, we are likely to see more robust and sustained sales trends.

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