Gaps between purchase contract prices and valuations consistently occur more often in predominantly black or Latin American regions than in white areas, according to a new study by Freddie Mac.
Valuation discrepancies occurred between 2015 and 2020 at a rate of 15.4% for the Latin American majority census tracts and 12.5% for areas where black households make up the bulk of the population. . The equivalent number for white areas was 7.4%, which equates to a percentage point difference of 8 compared to Latin American areas and 5.2 for black neighborhoods.
“We’ve found that black and Latino buyers consistently score lower than their white counterparts,” said Michael Bradley, senior vice president of modeling, econometrics, data science and analytics at Freddie’s single-family division, in an interview. “These deviations were large enough that they did not happen by chance. They are real.
While Freddie Mac’s research failed to identify factors of race-related valuation inequity, she tested whether other factors might explain the discrepancies, and generally found that they were not the case.
For example, the analysis reveals that the prevalence of valuation discrepancies is higher in census tracts where the share of black and Latino households is high. The difference in the prevalence of the evaluation gap for areas where the share of Latino households is relatively higher (80% -100%) compared to white neighborhoods, was 9.4 percentage points. The difference in the prevalence of misalignment in areas where the share of Latino households was lower (50% to 80%) was 7.7 percentage points. For areas in which the percentage of black households were in the two groups noted above, the difference in numbers from white census tracts was 5.9 and 4.8 percentage points, respectively.
“The results were all the more pronounced the higher the concentration of Blacks or Latinos in a census tract,” said Pamela Perry, single-family vice president of fair housing for Freddie Mac, in an interview.
The report also found that the differences were constant for a wide range of reviewers. About 50% of the reviewers produced results where the prevalence of gap ratings was higher in black and Latin American areas than in white areas.
These statistics and others in the report released on Monday are consistent with efforts of government-sponsored companies to reduce racial disparities in housing, and the authors suggest further study of the causes of evaluation disparities for this purpose. Freddie Mac drew his conclusions from an analysis of 12 million assessments from the Uniform Collateral Data Portal and information from the US Census tract. The UCDP is a digital database of the more than 50 million total reviews that Freddie Mac and his competitor Fannie Mae maintain.
Assessment industry groups acknowledged the results and indicated that they have worked with other industry entities to reduce inequalities through initiatives such as training, some related to identification. and avoidance bias, and scholarships aimed at reducing monetary barriers to entry.
“Unconscious biases are real and exist in all industries. Valuation is one part of a larger ecosystem, and valuation groups work alongside consumer groups, real estate brokers and agents, banks, government agencies and others to explore what inequalities can arise and what combination of solutions should be considered, ”said Rodman Schley, president of the Evaluation Institute, in an emailed statement.
The institute is one of several stakeholders that Freddie Mac partners with in his diversity and inclusion efforts, Perry said.
“We are looking at all aspects of housing inequalities and working with other industry players to find solutions to this problem,” she added.
Freddie Mac plans to research whether appraisers are using appropriate practices related to distance from comparable properties and whether other types of strategies made possible by the UCDP could make housing more equitable.
“We want the reviews to be produced through a fair and transparent process,” Bradley said. “This is why we are committed to doing the necessary work to produce consistent assessment results in different communities and to seek alternatives that include digital.” [methods]. “