While many racial and social injustices have moved to the forefront of our national consciousness over the past year, a number of inequalities continue to go unaddressed. A prime example is our nation’s presently booming housing market, with decades of data showing that African Americans and other minority groups have not received the same treatment as Caucasians when seeking mortgages or having their homes appraised.
Purchasing or selling a home is typically one of an individual’s most important life decisions. After all, a home is often a person’s largest asset and source of long-term wealth. Yet the real estate and mortgage industries continue to make it far too difficult for current and prospective homeowners to operate on the same playing field when searching for, purchasing and financing their dream home.
According to a 2019 report from the Consumer Financial Protection Bureau, African Americans have been denied mortgages at a rate of 16% and Hispanic Americans were denied at a rate of 11.6% compared to just a 7% rejection rate for white Americans over the same period. The National Association of Realtors also reported that single women — the second-largest group of homebuyers — often have their homes undervalued while paying higher interest rates than men.
A separate study conducted by Iowa State University found that same-sex couples are approximately 73% more likely to be denied a mortgage application than heterosexual couples.
The home appraisal industry, which is over 85% white, has not fared much better. A study conducted by the Brookings Institution found that “in the average U.S. metropolitan area, homes in neighborhoods where the share of the population is 50% Black are valued at roughly half the price as homes in neighborhoods with no Black residents.” The study also found that the “value of assets — buildings, schools, leadership, and land itself — are inextricably linked to the perceptions of Black people.”
When it comes to obtaining a mortgage and appraisal, there has always been far too much room for human bias. The fact is human decision-making and qualitative instinct still play too large of roles in the home-buying process. The status quo may be fine for the average Caucasian homeowner with a long credit history and sizable equity, but it is clearly not working for a growing number of minorities seeking to become first-time homeowners.
Rather than wait for the government to level the playing field through regulation, the housing sector should act decisively by leveraging new technologies — such as machine learning and automated valuation models — that can make objective, data-driven decisions. Organizations such as the National Association of Realtors and the Mortgage Bankers Association have an opportunity to set standard guidelines that can help lenders and appraisers make decisions based on tangible insights rather than instinct.
Studies already also show that digital, algorithm-based mortgage solutions can reduce discrimination in loan pricing against minority borrowers by 40%. This type of logical automation is much more impartial in accepting and rejecting loans compared to traditional face-to-face lending models.
When it comes to appraisals, free tools give consumers a fair and accurate valuation of their property so that they can make better-informed real estate decisions without having to rely on a human appraiser. This is the type of resource that can be embraced and become standardized across the industry.
Although technology is not perfect and human involvement in the home-buying journey will remain important, current and prospective homeowners deserve a better system. The reality is the current one is widening the wealth gap between Black and white families.
Jeremy Sicklick is the Co-Founder and CEO of real estate data and analytics company HouseCanary.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story:
Jeremy Sicklick at jeremy@housecanary.com
To contact the editor responsible for this story:
Sarah Wheeler at swheeler@housingwire.com
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