Tools for Supporting the Housing Market: Evaluating the Homebuyer Tax Credit and Other Policies

After the bursting of the home price bubble in the mid-2000s sent the housing market into a downward spiral, the government introduced a variety of new measures aimed at sustaining the flow of mortgage credit and boosting housing demand. One such measure was a program that provided a tax credit to homebuyers of up to $8,000. Although advocates of the program argued that it was a critical tool for absorbing excess inventories, critics complained that it simply accelerated sales that would have occurred anyway. Other measures aimed at stabilizing the housing market included various foreclosure prevention and mitigation initiatives, programs that facilitated refinancing, and the Federal Reserve’s considerable efforts to reduce interest rates.

With several years of experience of these policies now behind us, it is time to take stock of their effects. Establishing a better understanding of how they worked will help us learn what tools to use to combat future episodes of housing market distress and what measures the government should have in place now to encourage the nascent housing market recovery that has emerged over the past year.

Co-Directors of Economic Studies Karen Dynan and Ted Gayer presented a new paper on the impact of the federal and state homebuyer tax credits. A panel discussion followed to discuss how it compared to other government efforts to help the housing market. Speakers also took questions from the audience. 

Read the paper by Karen Dynan, Ted Gayer and Natasha Plotkin » 
Read the associated policy brief »