Generational wealth implications: Black and Latino-owned homes are more likely to be undervalued
A new study analyzing more than 12 million home appraisals between 2015 and 2020 found racial and ethnic disparities across the United States.
The research shows that Black and Latino homeowners are nearly twice as likely as white homeowners to have their homes undervalued.
Some experts, like Andre Perry, a senior fellow with the Brookings Metropolitan Policy Program, say this is a sign that racism in the real estate industry is a major factor in keeping Black and Latino families from accumulating wealth.
"When most people talk about structural racism and racism in general, they generally think of Klansmen in robes carrying torches … but where we still see pervasive discrimination that takes money out of people's pockets are in these everyday behaviors or practices that strip wealth," Perry told ABC News.
The report by mortgage giant Freddie Mac shows that 15.4% of appraisals in Latino neighborhoods and 12.5% in Black neighborhoods are valued less than the property's contract price. That number drops to 7.4% in majority-white neighborhoods.
As Black or Latino populations grow, the total of undervalued appraisals also rose, the study said.
Researchers accounted for many of the potential factors that could lead to a low home appraisal -- the home's structure, the neighborhood's features. Still, Black and Latino areas were disproportionately given lower appraisals.
Nationwide, 85% of appraisers at the end of 2018 were white, according to the Appraisal Institute.
“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," said Michael Bradley, senior vice president of modeling, econometrics, data science and analytics in Freddie Mac's Single-Family division.
Generational wealth represents the assets passed from one generation to the next. This can include things like stocks, investments, businesses and real estate.
Homeownership, Perry said, is one of the primary means of building wealth. Families lose money when their homes are valued lower, which can have a cumulative effect on their family for generations to come.
"If you have less equity in your home, you have less means to uplift yourself," Perry said. "The equity in people's homes determines so much. It's the money people use to send their kids to college, to start a business. Most people start the businesses using the equity in the home, to move to a better neighborhood. It's used when someone dies or gets married. It's significant."
The net worth of an average white family is nearly 10 times greater than an average Black family and eight times greater than an average Latino family. In 2016, those totals were $171,000, $17,150, and $20,600 respectively, according to a Pew Research Center analysis.
A Brooking Institute report also found that homes in predominately Black neighborhoods nationwide are valued $48,000 less than predominately white neighborhoods, which results in a cumulative loss of approximately $156 billion in equity.
These gaps in net worth highlight some of the ways housing discrimination and other forms of systemic racism impede the ability of Latino and Black to accumulate assets and invest in the future of their families.
Solving these gaps, Perry said, can help bridge the racial and ethnic disparities in other aspects of society.
"We don't want to lay the complete blame on the loss of home values on appraisers," said Perry. "They are certainly an important trigger but the same attitudes that appraisers have, so do [some] lenders, real estate agents and other people in various markets. So, this is a great first step in identifying the causes for the loss of value in homes and it is a key to understanding how we can restore value to people who've been robbed by racism over time."
Freddie Mac's Bradley says these problems are "pervasive" and hopes the survey is the latest step toward addressing equity in housing.
“Our research marks the beginning of a comprehensive effort to better understand the key drivers contributing to the appraisal gap," Bradley said in a statement. "Our goal is to develop solutions to this persistent problem, including appraisal best practices, uniform standards for automated valuation models, enhanced consumer disclosures, improved value processes, and revised fair lending exam procedures and risk assessments.”
