Ask me anything

I answer questions from one of my readers

For today's Substack, I am answering questions from reader Aryan Arora, a senior majoring in math and economics at Carleton College. If you like this format and want one of your questions answered, you can comment on this post with your questions for me. 

Q1: A couple of months ago, you wrote about your experiences navigating the media landscape. What steps would you like to see other economists take to make their work more accessible to the general public?

A1: Economists should talk to non-economists about their work. If we believe our work is useful, meaningful, and worthy of our time, then that work is worth sharing with the world. And it's not enough to summarize research. We have to see our work through other people's eyes and understand what value they would find in it and why.

With housing market research, I try to put myself in the position of a homebuyer, seller, renter, or homeowner to understand the importance of changing market conditions like a decreasing interest rates or low housing supply. Whatever field an economist is in, economists are studying market participants who are real-life people, so seeing the world from those people's perspective and talking to those people is critical for communication. 

Q2: The strength of our conclusions in economics is tied to the strength of our (ever-evolving) models. What do you think are some of the key weaknesses of our current housing market models?

A2: Housing market participants often don't act rationally. They make mistakes and let their emotions get the best of them. And that is to be expected. Most people only buy or sell a home once or twice in their life, and real estate can be challenging to understand. So, behavioral economics models can help improve our understanding of how people interact in the housing market. It can help explain why sellers are slow to drop their prices when the market softens. It can also help explain why price bubbles emerge when competition to buy homes gets hot. 

Another thing that economics models don't capture is the way people get emotionally attached to their homes and their neighborhoods in a way that turns them into NIMBYs. NIMBYs (not in my backyard) block construction of apartment buildings and other developments because they don't want to see their neighborhoods change. A lot of economics models assume housing supply is fixed in the short run, but there aren't great models on how NIMBYism is often the root cause behind why it's difficult to increase the supply of housing. We don't know the conditions that would lead a community to oppose housing versus support housing. And NIMBYism is probably the biggest obstacle to increasing the supply of housing and improving housing affordability. 

Q3: A recent paper showed that economics, compared to other disciplines, selects students with, on average, greater family income parental education and who do not come from marginalized backgrounds. What do you think economics can do to improve in this respect?

A3: There should be a greater focus on introducing economics to young adults from marginalized backgrounds. It's kind of a joke that if you want to get a Ph.D. in economics, you need to start preparing your first year of college, but it does help considerably, which means that incoming college freshmen need to know what economics is and what economists do to decide to sign up for all the necessary coursework. So, to that end, I think economists should try to engage more with high school and college students and speak to them on their level. Everyone interacts with the economy regardless of age, race, income, or background so that everyone can engage in conversations about the economy. 

Media Roundup

• I wrote this Op-Ed for Forbes: Biden Has a Housing Problem

  • “Despite the strong economy, Biden has not won over voters, and one obvious culprit behind the economic pessimism is the housing market. Unemployment is low, economic growth is strong, inflation has moderated, and income inequality has declined for the first time since 2007. However, home sales are at lows not seen since 2008, and 2023 is on pace to be the least affordable time to buy a home on record.”

• Business Insider: The 'tide turns' in the housing market as asking rents fall by the most in nearly 4 years

  • "Renters are finally catching a break," Redfin Chief Economist Daryl Fairweather said in the report. "Better deals are easier to come by because landlords are doling out concessions and rents have started falling in a meaningful way. Rising supply also means renters have more good options to choose from."

• Marketplace: With high prices and interest rates, homebuyers feel the pressure

  • Just two years ago, they [homebuyers] would be paying about $800 less on their monthly mortgage. That’s what stings about 2023, said Daryl Fairweather, chief economist at Redfin. “It’s gonna be a standout year because of just how quickly the market turned from one with low mortgage rates to one with high mortgage rates,” she said.