How do you measure the credibility of a site? By the quality and accuracy of its content of course! But, isn’t interpretation of that content important too?

I don’t think it is a secret to anyone that I’m dubious of much of the “chicken little” type of reporting about the current housing correction. I showed in another post how Keith Brand at HousingPanic has a distinct agenda, he calls it a manifesto, for the economy to collapse. Another site that appears to be in that camp is HousingDoom.com. Both sites take snipes at NAR (The National Association of Realtors) on a very frequent basis. Usually, with childish taunts that aren’t much more than the stuff you’d hear from children in a sandbox.

Take this post from HousingDoom, Pending Home Sales - Give it up NAR, We’ve Got Your Graph

In that post he presents the following graph:

Then he claims this somehow shows continued instability in the current housing market. But, it is apparent he doesn’t understand the data he is using.

Just what is the Pending Home Sales Index anyway? It is an index showing the relative number of homes with accepted contracts that have not closed escrow. Fair enough, but here is the part he doesn’t seem to get. It is normalized to the average volume for all of 2001!

Yep, by golly, that graph shows the number of contracts agents have negotiated and opened escrow on are almost at the same level they were in 2001! Gasp! Oh the humanity! The sky really is falling!

But, this stuff runs in cycles and we all know there was a feeding frenzy caused by a number of factors in the early part of this millennium. (For those of you who believe every thing you read on sites like HousingPanic that means a time frame starting on January 1, 2001.)

The fact is the Pending Home Sales index is much too immature for meaningful comparison. It would be interesting to see what the index would’ve looked like for the period starting with 1991. But, it is not available.

As time goes by two things will happen. One the index will mature and comparisons will actually mean something and two, we will have another view of existing data showing the cyclical nature of the housing markets. Something every investor with more than ten years of experience already knew.

NAR claims it is a leading indicator but I’m not so sure. If taken with a few other data points you should have a leading indicator but this index isn’t it by itself. You could have a market where the index is falling but prices are rising because there is not enough inventory to meet demand. Likewise, you could have the index rising with prices continuing to fall which is the likely scenario for 2008 and 2009.

But, alas, to the doomers, facts just get in the way and why understand the data when you can just spin it to fit your preconceived desires?