By John Hood
RALEIGH — Black-headed households are less likely than white-headed ones to own their residences. The latest data from the Census Bureau put the homeownership rate at 75% for whites and 45% for blacks. According to the North Carolina Housing Finance Agency, our state’s racial disparity is roughly similar.
These are facts. What they mean, how they came to be, and what ought to be done in response are debatable questions.
For example, politicians and activists frequently assert that the homeownership disparity is caused by racial bias, explicit or implicit. Although I can understand how they came to this conclusion, I believe they are mistaken.
You can’t just eyeball the two homeownership rates, 75% and 45%, and attribute the 30-point difference to racial discrimination. In fairness, no serious person really argues that. Rather, the argument is that even after adjusting for household income, net worth, and other variables, a disparity remains — so it must be caused by discrimination.
Again, I think this argument is made in good faith. But that doesn’t make it a good argument.
It has two big flaws: one at the “front end” and the other at the “back end.” For starters, most studies of racial and ethnic disparities in mortgage lending and homeownership rates do not actually control for all the factors that equal-opportunity lenders might reasonably take into account. In particular, external analysts typically lack access to the credit records that lenders use. Two households may be otherwise comparable in income and net assets but one may pay its bills regularly and the other sporadically.
Aside from the lending process itself, there are other factors that help to explain differences in homeownership. One is marriage. Other things being equal, married couples are better able to weather financial storms. And even when one parent is caring for children or doing other non-paid work, that can still contribute to the household’s financial stability.
In a 2011 study published in Social Service Review, a team of UNC-Chapel Hill researchers found that low-income married couples were two to three times more likely to buy homes than otherwise comparable unmarried folks. “Efforts to encourage marriage among low-income couples may be associated with subsequent economic mobility through home ownership,” they concluded.
A couple of years ago, the Brookings Institution created a big stir with a study claiming racial bias in home appraisal. Observing that homes in majority-black neighborhoods were valued at half the prices of homes in neighborhoods with no black residents, they controlled for income and related factors. The disparity was smaller but still significant. The Brookings scholars attributed it to implicit bias — and observed, correctly, that such a bias in appraising would result in unequal access to homeownership.
Not so fast, said two American Enterprise Institute scholars. They took the same data and adjusted for two more factors: credit scores and the share of loans made to single buyers, a proxy for marriage rates. That shrank the racial disparity into statistical insignificance.
AEI has also done good work on default rates. As I’ve previously observed, the best evidence for or against racial bias in mortgage lending isn’t to be found at the front end of the process (borrowers applying for loans) but on the back end (whether borrowers pay them back).
If lenders make their decisions without prejudice, then default rates for white and black customers ought to be roughly the same. But biased lenders will award more loans to whites than to blacks with the same incomes, debts, credit scores, and financial history. Such lenders will then experience a lower average default rate for their black customers, for whom they’ve set higher (and unjustified) standards. AEI tested that proposition a couple of years ago, finding that risk-adjusted default rates on mortgage loans were either the same or higher for black borrowers than for white borrowers.
In other words, racial bias doesn’t explain the disparity. If we want to expand opportunities for homeownership, let’s focus on real causes and practical solutions.
John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history (FolkloreCycle.com).
Amen! It is time to stop blaming racial bias on a history of slavery, redlining, segregation, Jim Crow laws, eugenics, and anti-miscegenation legislation! John Hood and the Locke foundation has hit the nail on the head — there’s no more racial bias! There are obviously some other (non-racial) causes for the disparity we see in America today!
What is being blamed on race seems to have nothing to do with race and everything to do with culture. No specific race is homogeneous in culture, thought, or opinion, and it’s on this fact that we can conclude that racism is not only wrong, but being misused.
No racial bias here …
November 2022: A Black family from Seattle, Washington, received a significantly higher home appraisal after “whitewashing” the property and asking a white neighbor to present it for them.
The Clark family said they bought their home in Seattle’s Columbia City neighborhood for a little under $1m four years ago. Since then, they renovated it by updating the kitchen and a bathroom and adding an extra bathroom.
The family requested a home appraisal when considering financing options to fund their renovations, but were shocked by how the value of their home had seemingly dropped significantly to $670,000.
Clark began “whitewashing” his home by removing African art and family photos.
The second appraisal came in at $259,000 higher than the original. The house was valued at $929,000.
Without knowing the two appraisers, it’s really hard to conclude. Maybe both appraisers were black and just looked at different data? This is circumstantial at best, and an outright
“leap to conclusion crying racism” the entire flight. I just read the king5.com article on this, and there’s no evidence that the “whitewashing” had any effect on the appraisal result. If it was the same appraiser, then sure, but it was two different appraisers that conducted each appraisal.
Hope your spine is okay Brett with all that stretching.
What’s seemingly always left out of this story is the fact that their neighbors sold in between the two appraisals. More recent comps boosted the second appraisal.
Appraisals are primarily used for banks/lenders to assess risk, not to decide how much money the homeowners are due.
Both the husband and wife in this scenario are professors..one of whom is a professor of racism (seriously). Worth noting that it’s possible they jumped to “racism!” before analyzing the situation with logic and level heads.. something that it appears you are eager to do as well.
I doubt any of that will change your mind that they were wronged.
Breathe, Miss Lady.
White People agree: racism no longer exists!
NCGAL, We had two appraisals as well on one of our rentals that we were selling done less than a month apart. The appraisals came back with significant differences. I was white both times.
So basically this opinion piece thinks racial gerrymandering should be legal and looks to manipulate race, economic status, and being able to own a home as ways draw voting lines….Got it.
The fact that this organization thinks it has the audacity to tell a tech CEO how to run one’s business is an extreme view and is not what America stands for. Specifically to focus that business on science and housing is literally authoritarian in nature and looks to manipulate the technology as to harm the people who reside within said gerrymandered lines.
Again someone tell the “Johns” both Locke and Hood that the views they disseminate are of fear and a complete misunderstanding of the powers of technology.
Just like writing fiction as fact and vise versa.
Slave Ukraine
Slava Ukraine*