Racial disparity in appraisals continues to improve
After encouraging reports from 2022, new data shows the appraisal gap continued to shrink throughout much of the U.S. in 2023.
Key points:
- Appraisal gaps remain between minority and white neighborhoods, but a decade-long trend of increasing disparities seems to have reversed.
- The gap shrank in nearly all states, but widened in Mississippi.
- The improvements follow the release of a federal action plan to address racial disparity in appraisals.
Efforts to reduce racial bias in home appraisals appear to be working, according to a new federal report looking at 2023 figures.
The Federal Housing Finance Agency's full-year report on the home appraisal gap shows a continuing trend of improvements first noted early last year.
The analysis compared appraisals from before the establishment of a task force to address racial bias in appraisals to those made after the 2022 release of an anti-bias action plan.
By the end of 2023, the appraisal gap between white majority tracts and Black majority tracts dropped from 6.0 to 3.8 percentage points following the release of the action plan. The appraisal gap between white majority tracts and Hispanic/Latino majority tracts dropped from 8.3 to 5.1 percentage points.
When looking at minority neighborhoods more generally, the FHFA found that the percentage of low appraisals in white neighborhood tracts was 8.2% in 2023, while in minority neighborhoods, 10.6% of appraisals came in below sale price. In high-minority neighborhoods, 13.3% of appraisals came in low.
That means the appraisal gap was 2.4 percentage points for minority neighborhoods and 5.1 percentage points for high-minority neighborhoods last year.
For this analysis, the FHFA defined a minority neighborhood as a census tract with a 50-80% minority population and a high-minority neighborhood as a census tract with a minority population above 80%.
While disparities remain, the numbers show a welcome reversal of a decade-long trend of widening appraisal gaps between white and minority neighborhoods.
Pre-2022, twice as many homes in minority neighborhoods appraised low
Between 2013 and 2022, the percentage of low appraisals was 7.4% in white majority census tracts, 13.4% in Black majority tracts and 15.7% in Hispanic/Latino majority tracts.
In response to that growing disparity, the government launched the Federal Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) in 2021.
The Task Force subsequently published the PAVE Action Plan in March 2022, providing strategies for government and industry to promote equity in property valuation and increasing awareness of racial bias in the industry.
State and metro data paint a mixed picture
The plan's release coincided with increased regulatory focus on discriminatory appraisals, and while there have been notable gains since 2022, the most recent report shows that progress has been uneven.
"At the state level, the appraisal gap between white majority tracts and both Hispanic/Latino and Black majority tracts declined in nearly all states with data available," the report indicated. "In one state — Mississippi — the appraisal gap between Black majority tracts and white majority tracts increased."
The report noted that in three states — Florida, New Mexico and Texas — the appraisal gap between Hispanic/Latino majority tracts and white majority tracts increased, while in two states — Connecticut and New Jersey — the percentage of low appraisals in Hispanic/Latino majority tracts was actually lower than in white majority tracts.
The FHFA data also showed variations in appraisal gaps between metros. The biggest gap in the metros analyzed was in the Fort Lauderdale-Pompano Beach-Sunrise, Florida metro, which had a 13% gap in appraisals between white and high-minority neighborhoods in 2023.
That was followed by a 10.3% white/high-minority gap in both the Las Vegas and Knoxville, Tenn. metros. The gap between white and 50-80% minority neighborhoods, however, was significantly lower in both metros at 3.4% and 1.2%, respectively.
Meanwhile, the Miami area came in ninth with a 7.7% gap between tracts with higher than 80% minority populations, but posted a negative 2.5% gap between tracts with 50-80% minority residents, meaning white-majority neighborhoods saw more low appraisals.
In the tri-county metro area bordering the Philadelphia metro, minority tracts had fewer low appraisals than white neighborhoods, with 12% of homes in white neighborhoods receiving low appraisals compared to 10.5% of homes in minority neighborhoods and just 3.39% in high-minority tracts.