Stimulus Policy in Uncertain Times: Evidence on the Impact in Real Estate Markets

The COVID-19 pandemic introduced historic high levels of economic and policy uncertainty alongside historic accommodative monetary and fiscal policy. Economists have theorized that uncertainty can inhibit market participants’ response to policy stimulus. We empirically tested whether the behavior of house prices following the COVID-19 pandemic is associated with changes in policy and economic uncertainty by examining a sample of 111 housing markets in the United States. We found that while accommodative monetary policy and several rounds of fiscal policy providing direct payments to households were made throughout the pandemic, house prices increased most significantly only after the uncertainty had resolved, nearly a year after the first policy moves. These effects were strongest in higher quantiles of the house price distribution and uncorrelated with the level of cash transfers received in the local housing market.