While many racial and social injustices have come to the fore in our national consciousness over the past year, a number of inequalities continue to go unaddressed. A prime example is our country’s currently booming housing market, with decades of data showing that African Americans and other minority groups have not received the same treatment as Caucasians when looking for loans. mortgage or have their home appraised.
Buying or selling a home is usually one of an individual’s most important life decisions. After all, a home is often a person’s most important asset and the source of long-term wealth. Yet the real estate and mortgage industries continue to make it far too difficult for current and potential homeowners to operate on the same playing field when finding, buying and financing their homes. dreams.
According to a 2019 report by Consumer Financial Protection Bureau, African Americans were denied mortgages at a rate of 16% and Hispanics were turned down at a rate of 11.6% compared to a rejection rate of only 7% for white Americans in during the same period. the National Association of Real Estate Agents also reported that single women – the second largest group of home buyers – often see their homes undervalued while paying higher interest rates than men.
A separate study conducted by Iowa State University found that same-sex couples are about 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 metropolitan area of the United States, homes in neighborhoods where the population share is 50% black are valued at about half the price of homes in neighborhoods without black residents.” The study also found that “the value of assets – buildings, schools, leadership and the land itself – is inextricably linked to black perceptions.”
When it comes to getting a mortgage and an appraisal, there has always been too much room for human prejudice. The point is, human decision making and quality instinct still play too big a role in the home buying process. The status quo may be fine for the average Caucasian homeowner with a long credit history and considerable equity capital, but it clearly isn’t working for a growing number of minorities looking to become first-time homeowners.
Rather than wait for the government to level the playing field through regulation, the housing industry should take decisive action by taking advantage of new technologies – such as machine learning and automated assessment models – that can take objective and data-driven decisions. Organizations such as the National Association of Realtors and the Mortgage Bankers Association have the ability to establish standard guidelines that can help lenders and appraisers make decisions based on tangible ideas rather than instinct.
Studies are already showing that algorithm-based digital mortgage solutions can reduce discrimination in the pricing of loans to minority borrowers by 40%. This type of logical automation is much more impartial in accepting and rejecting loans compared to traditional face-to-face loan models.
When it comes to appraisal, free tools give consumers a fair and accurate appraisal of their property so they can make more informed real estate decisions without having to rely on a human appraiser. It is the type of resource that can be adopted and standardized across the industry.
While the technology is not perfect and human involvement in the home buying process will remain important, current and potential homeowners deserve a better system. The reality is that 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 the editorial staff of HousingWire and its owners.
To contact the author of this story:
Jeremy Sicklick at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]