An Examination of the First-Time Homebuyer Tax Credit

Posted: 2 Nov 2016 Last revised: 15 Jun 2020

See all articles by Erik Hembre

Erik Hembre

University of Illinois at Chicago - Department of Economics

Date Written: October 20, 2016

Abstract

A major policy response to the 2008 housing crisis was the First-time Homebuyer Tax Credit, worth up to $8,000. To estimate the tax credit effects on homeownership, I construct a quarterly first-time homebuyer time-series using American Housing Survey data. Using both an event-study and a difference-in-difference framework, I estimate the tax credit induced 301,900 first-time homeowners and calculate the government paid $24,180 per additional homeowner. I find no evidence that first-time homebuyers bought more expensive houses or increased default rates. Estimating state and MSA-level effects I find a strong correlation between effect size and average home values, with a doubling in average home values implying a drop in effect size by 19.7 percentage points. These local effects also reveal larger effects in areas with smaller housing busts, had lower mortgage delinquency rates, and have higher housing supply elasticity.

Keywords: Homeownership, Policy, Public Assistance

JEL Classification: R21, H5, I38

Suggested Citation

Hembre, Erik, An Examination of the First-Time Homebuyer Tax Credit (October 20, 2016). Available at SSRN: https://ssrn.com/abstract=2857110 or http://dx.doi.org/10.2139/ssrn.2857110

Erik Hembre (Contact Author)

University of Illinois at Chicago - Department of Economics ( email )

725 University Hall (UH)
Chicago, IL 60607-7121
United States

HOME PAGE: http://www.ssc.wisc.edu/~hembre/

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