Redfin Study: Homes in Black Neighborhoods Are Undervalued by an Average of $46,000
Compared with homes in primarily white neighborhoods, homes in primarily Black areas have consistently been undervalued by tens of thousands of dollars over the last decade, after accounting for fundamental factors that contribute to home values
SEATTLE, April 20, 2021 /PRNewswire/ -- (NASDAQ: RDFN) — The average home in a primarily Black neighborhood nationwide is worth $46,000 less than a comparable home in a primarily white neighborhood, according to research outlined in a new report from Redfin (www.redfin.com), the technology-powered real estate brokerage. Redfin analyzed value estimates for more than 7 million homes that were listed and sold from 2013 through February 2021, accounting for the fundamental factors that contribute to a home's value, such as size, condition, neighborhood amenities and schools. The $46,000 gap exists after accounting for those fundamental factors.
"Our analysis rules out all the factors that are typically associated with home value and still finds a significant difference between the values of otherwise nearly identical homes in similar Black and white neighborhoods. We're left with bias and systemic racism to explain the variation in home values," said Redfin senior economist Reginald Edwards. "Today's Black homeowners are missing out on $46,000 worth of wealth due to racist housing policies that were outlawed in the 1960s and continuing biases among homebuyers and housing professionals in parts of the homebuying process like appraisals and mortgage lending—and that's $46,000 that would multiply as the years go on and benefit future generations."
The fact that homes in Black neighborhoods are worth less is one reason for the racial wealth gap in the U.S., as home equity is a major way to build wealth. Black Americans are far less likely to own homes than white Americans: Just over 44% of Black Americans own the home they live in, versus 74.5% of white Americans. The Black families who do own their homes have less equity than other races, with median home equity of $89,000 in January 2021 versus $113,000 for white families.
Although Redfin's analysis measures the undervaluation of homes in primarily Black areas after accounting for similarities and differences in neighborhoods, racial bias has also led to gaps in amenities between Black and white neighborhoods. For instance, areas with a high share of Black residents are likely to have less access to green space than white neighborhoods, and schools in minority neighborhoods are much more likely to be underfunded than those in white neighborhoods. Discrepancies like those undervalue homes in Black neighborhoods beyond what's measured by Redfin in its analysis.
The home-value gap between Black and white neighborhoods has remained essentially the same over the last decade
The value gap between homes in Black and white neighborhoods has held steady over the last eight years, fluctuating just slightly year by year. Homes in primarily Black neighborhoods nationwide were valued at an average of roughly $41,000 less than comparable homes in primarily white neighborhoods in 2020, compared with a $46,000 devaluation in 2013.
"No real progress on the racial home-value gap has been made over the last decade, which highlights the depth of the problem and how difficult it is to change," said Redfin Chief Economist Daryl Fairweather. "There isn't a policy that would make people less prejudiced. We would need to see a broad cultural shift in the way homebuyers view neighborhoods that are predominantly Black. I'm hopeful that can happen. It used to be that many white homebuyers would consider a neighborhood undesirable if there were any Black residents at all, but now diverse neighborhoods aren't as stigmatized. However, there still appears to be a stigma against primarily Black neighborhoods. Unfortunately, the longer Black Americans have lower home values than their white counterparts, the longer they are missing out on wealth that could be used for other investments and to pass along to their children."
Though undervaluation of homes in Black neighborhoods is larger in 2021 than any other year included in this analysis, the 2021 data only accounts for data through February and is likely to change as the months go on.
Case Study: Homes in primarily Black neighborhoods in Chicago are undervalued by more than $56,000, accounting for crime rates
To illustrate undervaluation, Redfin looked at homes that have sold over the last five years in Chicago. Crime rates are one factor in sale prices. Incorporating crime rates into Redfin's city-level analysis for Chicago shows that all else being equal—including crime rates—homes in primarily Black neighborhoods are valued at an average of $56,000 less than comparable homes in primarily white neighborhoods. Crime rates aren't included in the national analysis because there's insufficient data for many cities; Chicago is one of a handful of cities for which Redfin included crime rates in its analysis.
"Homes in majority-Black parts of Chicago are valued lower, and the cycle set in motion by policies like redlining make it tough to equalize home values," said Arnell Brady, a Redfin Mortgage advisor based in Chicago. "There's simply a perception that a home in mostly Black Bronzeville, for example, is worth less than a home in Lincoln Park, which is mostly white. It might be the exact same house, but the demographics and amenities of the neighborhood are different."
Although neighborhood differences contribute to the gap in home values, similar homes in similar neighborhoods still show a gap in home values when the only observable difference is the racial makeup. To illustrate the point, Redfin compared two similar properties in neighborhoods with similar crime rates on the South Side of Chicago. This 1,300 square-foot single-family home, located in the Beverly View neighborhood—which is primarily Black—sold for $172,000 in November 2017. And this home, also a 1,300-square-foot single-family property and located about three miles south in the Beverly Hills neighborhood—which is primarily white—sold for $217,500 in July 2016. Both homes have three bedrooms and two bathrooms. They're located so close to each other that they're zoned for the same middle school and high school, and they each have a Walk Score of 47, meaning most errands require a car.
Median home prices in Chicago dropped by $15,000 between July 2016 and July 2017, but even taking that into account, these two comparable homes in similar neighborhoods should have sold for much closer to the same price.
A combination of causes and possible solutions
Redfin's report outlines several causes that contribute to the continuing disparity in home values in Black versus white neighborhoods. This includes current racial biases of individuals—such as real estate agents, appraisers, and homebuyers themselves—as well as systemic racism at play within institutions involved in the homebuying process.
It also explores potential solutions to reduce discrimination and work towards equality in home valuations. This includes investments at the federal and local level in communities and directly to Black homebuyers, confronting the racial bias of individuals involved in the homebuying process, diversifying the real estate industry, and more.
To read more about these causes and solutions, see additional case studies and review metro-level home valuation data, please visit: https://www.redfin.com/news/undervaluation-homes-black-versus-white-neighborhoods/
About Redfin
Redfin (www.redfin.com) is a technology-powered real estate broker, instant home-buyer (iBuyer), lender, title insurer, and renovations company. We sell homes for more money and charge half the fee. We also run the country's #1 real-estate brokerage site. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can take an instant cash offer from Redfin or have our renovations crew fix up their home to sell for top dollar. Since launching in 2006, we've saved customers nearly $1 billion in commissions. We serve more than 95 markets across the U.S. and Canada and employ over 4,100 people.
For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email [email protected]. To view Redfin's press center, click here.
SOURCE Redfin
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