According to a new Freddie Mac study, regions with a black-majority or Latin American population are more likely to have gaps between sales contract prices and valuations than white areas.
Estimation gaps occurred between 2015 and 2020 at a rate of 15.4% for Latin American majority census areas and 12.5% for regions where black households make up the majority of the population. The corresponding figure for white areas was 7.4%, which is a percentage point difference of 8 compared to Latino areas and 5.2 for black areas.
"We found that black and Latin American buyers consistently score lower than their white counterparts," said Michael Bradley, senior vice president of modeling, econometrics, data science and analytics at Freddie's family division in an interview. “These gaps were big enough not to arise by chance. They are real. "
While Freddie Mac's research failed to identify the causes of racial-related rating inequalities, it tested whether other factors might be responsible for the discrepancies and generally found that they weren't.
For example, the analysis finds that the prevalence of the valuation gap is higher in the census areas where the proportion of black and Latin American households is increased. The difference in the prevalence of the rating gap for areas where the proportion of Latino households is relatively higher (80% -100%) compared to white neighborhoods was 9.4 percentage points. The difference in the prevalence of the assessment gap in the areas where the proportion of Latino households was lower (50% -80%) was 7.7 percentage points. For regions where the proportion of black households fell in the two categories above, the difference between the numbers compared to the white census areas was 5.9 and 4.8 percentage points, respectively.
"The higher the concentration of blacks or Latinos in a census area, the more pronounced the results," said Pamela Perry, single-family vice president of equitable housing at Freddie Mac, in an interview.
The report also found that the differences were consistent across a wide range of reviewers. About 50% of the reviewers achieved results where the prevalence of assessment gaps was higher in black and Latin American areas than in white areas.
These and other statistics in the report released Monday are in line with government-sponsored efforts by companies to reduce racial gaps in housing, and the authors suggest further research into the causes of valuation discrepancies to that end. Freddie Mac drew his conclusions from an analysis of 12 million reports from the Uniform Collateral Data Portal and information from the US Census Tract. The UCDP is a digital database with a total of over 50 million reviews maintained by Freddie Mac and competitor Fannie Mae.
Industry groups from the valuation industry recognized the results, saying they worked with other industry organizations to reduce inequalities through initiatives such as training related to identifying and avoiding bias and grants to break down monetary barriers to entry.
“Unconscious bias is real and exists in all industries. Assessment is part of a larger ecosystem, and assessment groups work with consumer groups, real estate agents and brokers, banks, government agencies and others to investigate where injustices can come from and what combination of solutions should be considered, ”said Rodman Schley , President of the Appraisal Institute, in an email statement.
The institute is among several stakeholders that Freddie Mac works with in his diversity and inclusion efforts, Perry said.
“We are researching housing inequalities across the board and working with others in the industry to find solutions to this problem,” she added.
Freddie Mac plans to investigate whether appraisers are using appropriate practices related to how far away comparable properties are and whether other types of strategies the UCDP enables could make housing more equitable.
"We want reviews to be a fair and transparent process," said Bradley. "That is why we commit to doing the work necessary to achieve consistent assessment results in different communities and to looking for alternatives that incorporate digital (methodologies)."