Fundamentals will win out

Ryan Avent seems to think that basic economics went out the window in the housing bubble (link via Megan McArdle). I find his criticism of Fed economist Fiona Sigalla completely baffling. Here's what she said:

In addition, house prices [in Dallas] have been stable compared with other areas, Ms. Sigalla said, adding, “We have lots of available land and fewer regulations, so we have a homebuilding boom sufficient to keep home prices at bay.”

Supply expanding to meet increasing demand? Happens in almost every industry. Texas has more land than other coastal areas? That doesn't seem too controversial. Regulations raise the price of housing? Ed Glaeser doesn't think that's laughable, and he's the indisputable king of urban economics. And it's completely true that housing prices in Dallas were relatively stable (increasing only 26% from 2000 to the peak).

It's true that some areas that meet the criteria of open land and relatively lower regulation have seen a bubble (Phoenix and Las Vegas come to mind). But the fact that markets sometimes make mistakes and overshoot when groping for an equilibrium doesn't mean that fundamental economic forces are irrelevant or, as Avent thinks, completely laughable. I don't know of any economist who would even disagree with what Fiona Sigalla said, let alone find it mockable. 

 

Share this

You meant "win" out, right?

Also, soon we shall have trackbacks so that the people you link to will know you wrote a response.

Yes, win.

Yes, I do. Edited to make that clearer.