Finding of Bias in Home Valuations Fails by Own Measure
In an updated refutation of the findings of Brookings Institution researcher Andre Perry, Edward Pinto and Tobias Peter of the AEI Housing Center demonstrated just how broken the Brookings research was.
Perry’s 2018 research, titled “The Devaluation of Assets in Black Neighborhoods,” pinned the nation’s racial wealth gap on 80,000 state-licensed real property appraisers.
Unfortunately, these now-discredited findings have been levered by housing-industry lobbyists, partisan policymakers, agitators and grievance groups to malign the nation’s 80,000 real property appraisers and hollow out America’s mortgage underwriting safeguards.
A dataset provided to Pinto and Peter earlier in the year by Perry allowed the AEI Housing Center to fully refute the latter’s conclusions.
While their original refutation was still largely correct, Pinto and Peter have now updated their key findings and takeaways using the new dataset. To the surprise of no one, their redacted study found that what Perry et al. had characterized as race-based differences in home valuations were almost entirely due to socio-economic status, not racial bias by real estate appraisers.
Using the dataset and Perry’s own methodology, Pinto and Peter created a simple case study of so-called “entirely white” tracts (tracts demographers rate as 97.5% white or greater). In those tracts, racial animus, by definition, is ruled out as a factor. The duo then compared high and low socio-economic status in these so-called all-white neighborhoods and found differences as large as – or even larger than – the ones Perry et al. incorrectly attributed to racial bias.
But much damage has been done by Perry’s now-discredited findings. Perry’s 2018 report took the nation’s real property appraisers from the table and onto the menu. The flawed findings have most recently served as a pretext to justify the current administration’s whole-of-government effort to insert race into every corner of the mortgage underwriting process, including collateral valuation.
Although few thought it possible, the focus on the facile notion that appraisers are responsible for socio-economic differences between property owners, buttressed by Brookings’ botched findings, has exposed the taxpayer to unimaginable risks and superimposed layers of Ottoman-style bureaucracy on what was already an expanding regulatory labyrinth directed at appraisers – one that generates steady income for lawyers, consultants, nonprofits, demagogues and 50-odd state and federal bureaucracies.
Adding an Equifax Risk Score as a control, Pinto and Peter were able to reduce Perry’s devaluation assertion from 23% to -0.3%, a 100% reduction. The -0.3% figure is not significantly different from zero. In other words, by adding just the Equifax Risk Score – which is related to socio-economic status – as an explanatory variable, the devaluation claimed by Perry et al. disappears.
Besides finding what Perry et al. misinterpret as race-based differences in home values when socio-economic status was largely the culprit, Pinto and Peter determined:
- That while lower socio-economic status may leave blacks at a large income (and wealth) disadvantage relative to most whites, this is not due to any statistically relevant bias in home appraisals
- The primary remedy would be policies that work to address the income and wealth gap, not those that scapegoat appraisers.
- The focus should be on increasing financial security, creating generational wealth, and shrinking the socio-economic gap through sustainable home ownership. This is largely a buying power issue, not a valuation one. To do otherwise risks repeating the mistakes of the past.
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