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Home Publications Blogs CEPR Blog House Prices Unchanged in August, While Tax Credit Leaves Some Underwater

House Prices Unchanged in August, While Tax Credit Leaves Some Underwater

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Written by Dean Baker   
Tuesday, 25 October 2011 12:30

The Case-Shiller 20-City index in August rose by just 0.2 percent from its July level, with prices rising in 10 of the cities and declining in the other 10. Most of the changes in prices were modest. Washington, D.C., saw the largest gain, at 1.6 percent, while Atlanta saw the largest drop, at 2.4 percent. Cities in the Midwest — such as Cleveland, Chicago, Minneapolis and Detroit — have shown strong price growth over the last few months. Prices in Cleveland rose at a 10.4 percent annual rate between May and August. Prices in Chicago and Minneapolis rose at a 29.1 percent and 29.3 percent rate, respectively, and prices in Detroit rose at a 55.9 percent rate over this period.

Much of the movement continues to be focused on the bottom end of the market, which in most cities is again doing worse than more highly priced homes. Most of the story with bottom-tier homes over the last two and half years can be explained by the first-time buyers tax credit. Predictably, the credit had the largest effect on the bottom tier of the market both because this is where first-time buyers are concentrated and also because the credit would be a large share of the house price. A good example is Minneapolis, where prices of bottom-tier homes rose by 30.6 percent from a pre-tax-credit level to a tax credit peak in 2010. Since then, prices in the bottom end of the market have fallen by 26.4 percent. This means that anyone who took advantage of the credit to buy a bottom-tier house in the summer of 2010 is almost certainly underwater and has lost considerably more equity in their home than they received from the credit.

For more, check out the latest Housing Market Monitor.

Tags: housing | housing bubble

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