Freddie Mac Study Finds Black And Latino Homeowners Are Almost Twice As Likely As Whites To Get Low Appraisals
A just-released report by Freddie Mac - a government-controlled entity that guarantees home mortgages - has found that home appraisers are more likely to undervalue homes in Black and Latino areas than those in white ones. This is just the latest evidence of significant racial inequities in housing which has directly led to lower rates of homeownership among Black and Latino households.
Michael Bradley, a senior vice president at Freddie Mac, commented:
"An appraisal falling below the contracted sale price may allow a buyer to renegotiate with a seller, but it could also mean families might miss out on the full wealth-building benefits of homeownership or may be unable to get the financing needed to achieve the American dream in the first place. This is a persistent problem that disproportionately impacts hundreds of thousands of Black and Latino applicants."
Freddie Mac's new analysis of over 12 million appraisals between 2015-2020 discovered that only 7.4% of appraisals in majority-white census tracts were below a property's contract price. This was 12.5% for Black and 15.4% for Latino census tracts, where homes were over two times as likely to be undervalued compared with those in white areas. The analysis also found that as the concentration of the Black or Latino population grew in a particular area, so did the share of undervalued appraisals.
The study reported that even when accounted for structural differences in homes and the unique characteristics of different neighborhoods, Black and Latino areas were still more likely to see lower appraisals. There was also no evidence that the disparity was caused by a small number of appraisers, the report said. The result of this disparity is evidenced by a 2018 Brookings Institution report that found that homes in Black neighborhoods are worth 23% (an average of $48,000 per home) less than similar homes in neighborhoods with few or no Black residents. Freddie Mac said that the disparities in appraisals call for more research to determine the "full root cause of the gap."
Freddie Mac is one part of an ongoing initiative, along with its sister organization Fannie Mae, the Appraisal Institute and the National Urban League, that is attempting to increase diversity in the field of residential appraisal. The reason is that as of 2018 some 85% of appraisers nationwide were white, while fewer than 2% were Black, according to a report from the Appraisal Institute.
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Source: NPR, September 23, 2021.
