A Simple reminder on Metrics

Metrics are useful things as they convey concise information and allow comparisons between actual and ideal situations fairly easily. However they are easily manipulated. Housing Bubble Casualty notes how the California Association of Realtors is playing with their metrics:

The minimum household income first-time buyers needed to purchase a home at $478,710 in California in the third quarter of 2006 was $98,890, based on an adjustable interest rate of 6.58 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $3,300 for the third quarter of 2006.

First off, the OLD standard used to be 20% down and a FIXED rate loan. Now, they are using 10% down and an ADJUSTABLE rate loan. Looks like the ole “when things aren’t looking as good as we think they should, we will just change the standard”. It has been used successfully with SAT scores, so why not housing stats? After all, if we just change the ’standard’ every so often, we can show progress with each new ’standard’. Don’t believe me…here is the link to a report from December 2005 that uses the ‘old’ 20% down standard: The ‘OLD’ affordability index from 2005. Here is the excerpt:

LOS ANGELES (Dec. 8 ) – The percentage of households in California able to afford a median-priced home stood at 15 percent in October, a 4 percentage-point decrease compared with the same period a year ago when the Index was at 19 percent, according to a report released today by the California Association of REALTORS® (C.A.R.). The October Housing Affordability Index (HAI) was unchanged from September, when it stood at 15 percent.

The minimum household income needed to purchase a median-priced home at $538,770 in California in October was $128,480, based on an average effective mortgage interest rate of 6.03 percent and assuming a 20 percent downpayment.

A second institution that is playing with its metrics to make their poor results look better is the US Army. Military.com is reporting that the US Army is taking in significantly more recruits with only a GED instead of a high school diploma. However due to a quirk in the rules, or a specific exemption, these new recruits are excluded from several important force quality measures. This exclusion coincidentlally makes the public affairs officer’s job a whole lot easier.

The Two Tier Attrition Screen (TTAS) is an added quality indicator that officials hope will allow the Army take in many more high school dropouts……….

In fiscal 2006, which ended Sept. 30, the Army brought in 5900 non-high school graduates as TTAS (pronounced T-TAS) recruits. Not only do such recruits help the Army reach its numerical recruiting goals but the Army can exclude these recruits when calculating the percentage of high school diploma graduates recruited, which is an important quality measure.

For example, the Army announced last month that 81 percent of its non-prior service recruits for 2006 were high school graduates. That was disturbingly below the 90 percent Department of Defense standard for every service. But the proportion of high school graduates would have been reported as 74.3 percent if the Army had to count the 5900 TTAS enlistees high school dropouts. The number instead is ignored.

In March, Defense officials gave the Army permission to sign up 8000 TTAS recruits a year to ease increasingly difficult recruiting challenges.

Metrics can be powerful tools, but in these two cases, they can be extemely misleading for people who look at the final number and not the process that produced the number. Just beware when you read reports that you understand how the numbers are created and potentially massaged.

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