Black house valuation gap is real and persistent, reports Freddie Mac | Business
The racial gap in home valuations is a real phenomenon, sabotaging the wealth-creating power of property in black and Latino neighborhoods, mortgage giant Freddie Mac said Monday.
The company released an analysis showing that estimated values are more likely to be below the contract price for homes in census tracts with a higher share of black and Latino households. The conclusion was based on Freddie Mac’s review of 12 million valuations ordered for purchase transactions from 2015 to 2020.
The valuation gap is important because it creates a barrier for black and Latino consumers hoping to buy a home.
“This is a persistent problem that disproportionately affects hundreds of thousands of black and Latino applicants,” said Michael Bradley, senior vice president of modeling, econometrics, data science and of Freddie Mac’s analysis.
A measurable racial divide
Freddie Mac’s study added data indicating that appraisers may unknowingly undervalue homes in non-white neighborhoods. Valuing a home is an imprecise art, of course, so Freddie compared the appraised values to the purchase prices buyers had agreed to pay.
His study found that homes in predominantly black and Latino census tracts were given appraised values below the contract price more frequently than homes in white areas. While 12.5% of homes in predominantly black areas were priced below the contract price, only 7.4% of homes in predominantly white areas experienced valuation deficits.
Additionally, as the concentration of Black or Latino residents in census tracts increases, the valuation gap increases, Freddie Mac found.
And the culprit doesn’t seem to be a small number of uninformed reviewers – a large chunk of reviewers who conducted assessments in minority and non-minority areas generated statistically significant discrepancies, said Freddie Mac.
His study indicates that the lender will continue to examine “the root cause of the gap.”
Housing industry targets valuation gap
Freddie’s study reflects a new focus on the racial gap by big players in the housing industry. In an earlier finding on the same topic, a 2018 Brookings Institute study found that black-owned homes are dumped by an average of $ 48,000.
And this year, Chase pledged $ 3 million for the Appraiser Diversity Institute. The mega-bank said its goal was “to eliminate bias in the home appraisal process.”
In a separate statement on Monday, the Evaluation Institute praised Freddie Mac for exploring the issue.
“Unconscious biases are real and exist in all industries,” the trade group said. “Valuation is one part of a larger ecosystem, and valuation groups work alongside consumer groups, real estate brokers and agents, banks, government agencies, think tanks and others. to explore where housing inequalities may originate and what combination of solutions should be considered. . “
Appraisals are just one part of a stubborn racial divide in the US real estate market. Black Americans are less wealthy overall, so they’re less likely to own a home – and when they own a home, they’re more likely to pay higher mortgage rates.
Black homeowners often struggle to build long-term wealth because their properties are undervalued – and there is no simple, straightforward way to challenge or change a valuation.