Study: Tax Credit Had ‘Fleeting’ Effect on Housing Market


By Nick Timiraos

Bloomberg News

Critics of last year’s $8,000 tax credits for home purchases routinely argued that the credits were unlikely to do more than offer sellers the chance to boost their sale price by the amount of the tax credit.

Those critics won’t be surprised, then, by a new paper that finds—you guessed it—that average listing prices rose by around $8,000 in the month after the signing of the first major tax credit, and that they fell by slightly less than $9,000 two months after the tax credits expired.

The paper by Jonathan Brogaard and Kevin Roshak, doctoral candidates at Northwestern University’s Kellogg School of Management, found that the tax credit did little to change the quantity of homes for sale. But the researchers found that in certain markets, the tax credit had a substantial impact on prices.

Researchers looked at different types of housing markets: stable and low-cost markets were more likely to be influenced by the credit, while more expensive markets or those with more volatile prices were less likely to see an impact.

In the first class of housing markets, researchers found that homes sold for around $6,500 more than before the credit. “These price and quantity changes imply that sellers captured the credit in treatment markets,” the paper says.

While the estimates of the changes in home prices during and after the tax-credit program “are imprecise, they are also dramatic and distinct relative to other noise,” the authors write.

The paper concludes that “rather than igniting ‘animal spirits,’” the tax credit had a transitory effect. “These results suggest that the tax credits had only a fleeting influence on the housing market, resulting in little more than a redistribution of wealth,” it says.