There is a large “valuation gap” between black and white homeowners.
The appraisal value of homes in predominantly black and Latino neighborhoods is often much lower than that of homes in predominantly white communities, according to a recent analysis by Freddie Mac.
The government’s chartered mortgage giant’s analysis includes more than 12 million home appraisals and shows where in the United States those appraisals were made. The researchers found that 12.5% ââof homes rated in black communities were rated at less than the home’s initial cost of building. That figure compares to 7.4% of homes in white neighborhoods and 9.4% of homes in Latin American areas, according to the analysis.
The differences suggest that there is a “valuation gap” among color owners and that it exists across the country, officials at Freddie Mac said. Michael Bradley, senior vice president of Freddie Mac, said in a statement that the gap “could also mean that families might miss out on all the wealth-building benefits of homeownership or might be unable to. get the funding needed to make the American dream come true in number one. “
For some black and Latino families, owning a home is the first step in building generational wealth. A valuation spread would likely prevent these households from increasing their home equity, which would reduce their chances of borrowing against the property or selling it for a better profit later.
In addition to the valuation gap found by Freddie Mac, studies have shown that black and Latino homebuyers have– and when they acquire a loan, it sometimes carries a higher interest rate than for whites in similar economic circumstances. In some cases, real estate agents are known to steer black buyers to less desirable areas.
In April, homeownership rates for blacks, Hispanics and whites in the United States were 44%, 47% and 74%, respectively, according to data from the St. Louis Fed.
Years of discrimination
To some extent, the data collected by Freddie Mac – who buys mortgages from commercial banks to help lower the costs of borrowing to buy a home – validates the many anecdotal allegations of discrimination that black and Latino homeowners say they have. suffered for years.
An African-American homeowner who had her home in a historic Indianapolis neighborhood valued at $ 110,000, although the actual value was closer to $ 259,000. Owner Carlette Duffy is now suing the appraiser who she says undervalued her property, the Indianapolis Star reported.
In Ohio, black homeowners Erica and Aaron Parker reportedly had their home appraised for $ 465,000. The couple then decided to remove their family photos and replace them with photos of white people before getting a second review, USA Today reported. The second valuation was $ 557,000.
Housing discrimination experts say Freddie Mac’s analysis highlights the racial bias prevalent in home ratings.
âWhat you have is arguably the most data-rich organization that publishes a scathing report on valuers,â Brookings senior associate Andre Perry told CBS MoneyWatch. “It’s the biggest authority on housing, and they’re basically saying there’s a rater bias that robs people of wealth.”
The report also highlights the role of automated property appraisal services as a means to combat racism, added Perry, author of “Know Your Price: Valuing Black Lives and Property in America’s Black Cities.”
“It will force the [appraisal] the industry really has to deal with its members and with racism, âhe said. âIf you have an authority like Freddie issuing this report, there should be some type of follow-up and advice on how to hold people accountable. “
Freddie Mac’s data was based on ratings of single-family homes in the nation’s top 30 metropolitan areas, submitted between January 2015 and December 2020. The research does not explain the cause of the discrepancy.