Study: Tax credits had little effect on housing markets

A new paper found that the average listing of home prices rose about $8,000 the month after the first major tax credits for the same amount went into effect, and they fell by slightly less than $9,000 two months after they expired, according to the Wall Street Journal blog.

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.

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 and found that stable and low-cost markets were more likely to be influenced by the credit, while more expensive markets or those with more capricious 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.

For more information: http://blogs.wsj.com/developments/2011/07/18/study-tax-credit-had-fleeting-effect-on-housing-markets/