Fiscal Stimulus Payments, Housing Demand, and House Price Inflation

Abstract

During the COVID-19 pandemic, the U.S. housing market experienced an unprecedented boom, with house prices climbing at record rates despite widespread economic disruptions. This paper studies whether the fiscal stimulus transfers---specifically the Economic Impact Payments (EIPs) and expanded Child Tax Credit (CTC) payments totaling over $900 billion---contributed to the surge in housing demand and house prices. These payments were substantial relative to household savings and typical down payments, potentially alleviating liquidity constraints for marginal homebuyers. The analysis shows that lower-income households, who benefited from a significant increase in disposable income due to stimulus payments, experienced greater increases in homeownership rates and housing consumption. A regression kink design exploiting income-based eligibility thresholds suggests a causal relationship between stimulus payments and housing outcomes. Examining variation across regions, I find a strong positive correlation between average stimulus payments and house price growth from 2019 to 2021. This relationship cannot be explained by changes in non-transfer income, population size and density, population growth or migration, exposure to remote work, pre-2020 per capita income or house price levels, or differential housing trends. It holds both across MSAs within the same states and across counties within the same MSAs. The findings suggest that the pandemic stimulus programs contributed to the recent surge in house prices and inflation and highlight an important housing channel in the transmission of fiscal transfer payments.

Keywords: Stimulus payments, fiscal policies, housing demand, house prices, homeownership, inflation

JEL Classification: E21, E62, H24, H31, R21, R30