New AEI Housing Center analysis shows that seemingly large differences in the share of under-valuations – appraisals where the appraised value is below the contract price – received by people of color are almost entirely or entirely due to differences in geographies where people, regardless of race or ethnicity, reside, according to a press release.
When comparing appraisals for people of color to those for non-Hispanic white people within the same geographies, a new study by the American Enterprise Institute’s (AEI) Housing Center finds that there are no or hardly any differences.
The study is the first of its kind using newly released, appraisal-level data from the Federal Housing Finance Agency’s (FHFA) Uniform Appraisal Dataset Appraisal-Level Public Use File and confirms earlier AEI research, which had reached a similar conclusion, the release stated.
The study suggests that commonalities in people’s experiences in buying a home (e.g., first-time home buyer status) or local market conditions (e.g., the presence of a market frenzy or seller concessions) are far more important than differences in people’s race or ethnicity when it comes to determining who receives an undervaluation and who does not. AEI said this suggests studies by FHFA, Brookings, or Freddie Mac with a singular focus on appraiser racial bias have misdiagnosed the issue.
“To facilitate further analysis, the AEI Housing Center urges FHFA to expand its appraisal-level dataset to include first-time homebuyer status, seller concessions, or loan-to-value ratio,” the release said. “To better measure and document appraiser racial bias, the study also urges FHFA, Fannie Mae, or Freddie Mac to review every appraiser on an individual basis for racial bias and deliberate inaccuracies with input from researchers.”
This study is the latest in a series of reports by the AEI Housing Center, which have found flaws in research of significant and systemic devaluations of black neighborhoods, systemic and large valuation differences in refinance appraisals, and higher mortgage decline rates for minority borrowers.