Association for Public Policy Analysis & Management

A major policy response to the 2008 housing crisis was the First-time Homebuyer Tax Credit (FHTC), available between April 2008 and June 2010, with over 3.3 households claiming the tax credit. Determining the effectiveness of the FHTC remains quite difficult given its national implementation and com mingling with other policy responses to the financial crisis. This paper isolates effects from the FHTC using a difference-in-difference strategy which compares the mortgage originations response of first-time homebuyers relative to that of previous owners. Utilizing several large national mortgage datasets, I estimate that 453,667 were induced into homeownership by the FHTC. Of these, 254,663 were short-term substitution households who sped up their homeownership by two years or less. State variation in the response is then used to recover the elasticity of homeownership, finding households to be relatively inelastic towards homeownership and implying a high government cost to acquiring new homeowners. Intensive margin outcomes such as home value, mortgage financing characteristics, and mortgage prepayment and default are also examined, but yield mixed results.