Previous Brookings research found that homes are undervalued in majority-Black neighborhoods, yet could not identify why. Recently, the Federal Housing Finance Agency released new neighborhood-level data on home appraisals.
We continue to find that homes in Black neighborhoods are valued roughly 21% to 23% below what their valuations would be in non-Black neighborhoods. Neighborhoods with a majority of Latino or Hispanic, Asian American, or white residents do not experience home price devaluation, using the same model. Appraisal bias explains a fraction of the devaluation of homes in Black neighborhoods: approximately 9% to 19%, depending on modeling approaches. The vast majority of homes in majority-Black neighborhoods and throughout the country are appraised at or above their contract price, leaving much of the variance unaccounted for. The cost of devaluation across the 113 metro areas in the U.S. with at least one majority-Black neighborhood is approximately $162 billion.
Our overall conclusion is that at least 10% of homes are at risk of under-appraisal in majority-Black neighborhoods, and this has a modest but meaningful effect on overall valuations and final sales prices—limiting wealth accumulation for homeowners in majority-Black neighborhoods. Under-valuations also delay or cancel transactions, which reduces mutually beneficial market exchanges in Black communities.
At the same time, those seeking to make housing markets work more effectively in majority-Black neighborhoods will have to look beyond appraisal reform. Appraisal bias appears to explain less than 20% of overall devaluation, and most appraisals in majority-Black neighborhoods are above the contract price. Likely, consumer bias keeps demand low in majority-Black neighborhoods, depressing home values.