Copeland's Corner: August 24, 2022
When you undervalue the homes of people of color, you are diminishing the value of generational wealth.
My 31-year-old daughter Carolyn and her husband, Patrick are part of a rare group. They are Millennial homeowners and have been for about six years now. They didn’t inherit their condominium or receive down payment assistance from parents, grandparents or other relatives, as so many young people seeking to buy a home do. They worked hard, saved their money and, with a lot of searching and a ton of luck, they were able to purchase property in the San Francisco Bay Area, one of the least affordable housing markets in the country.
In addition to being Millennials who own their place, they are part of an even smaller subset of American homeowners: people of color who are successfully in the property ownership class. Carolyn is African American and visually presents as such. Patrick’s background is an eclectic mix of several races and ethnicities, including being one quarter Mexican. You’d never know any of this unless you asked him, because visually, he looks like a white man.
Carolyn and Patrick have made numerous improvements to their condo since its purchase. In order to finance the various projects, they’ve refinanced a few times, taken out home equity loans and put the money back into the property. On three previous occasions, Carolyn wasn’t home and Patrick gave the loan appraisers a tour of their condo. Each time the value went up and the home loans were approved. As I said, the San Francisco housing market is one of the most challenging in the country. Home values have increased an average of double digits in each of the past few years. There’s been no problem in tapping some of that gained equity to finance household projects.
My daughter and son-in-law are expecting their first child this fall and decided that it was time to remodel their outdated, 1980s-style kitchen so, they decided to refinance again as property in their building and in the region has increased so much during the pandemic. This time, because Patrick had to work, Carolyn took the appraiser on the home tour. She showed him the improvements they’d made since their last refinance and how these additions had added value to the home. When the results of the appraisal came back, Carolyn and Patrick were shocked to see that the appraiser had determined that the home had not appreciated at all since their last valuation. It hadn’t gained one penny in equity.
To put this in context, let me share a few numbers. According to Zillow, home prices in the Bay Area appreciated 11.5% from June 2021 to June 2022. The current median home price in the San Francisco Bay Area topped $1,000,000 for the 16th month in a row. It stands at $1,400,000. All of this, and Carolyn and Patrick’s home didn’t appreciate a penny during that time.
Carolyn wondered if race had played a factor. After all, she is African American, and it was the first time that she had led an appraiser through the home. Then she read about Tenisha Tate-Austin and her husband in Marin County. The Austins are also African American and had spent years renovating their home, adding a redwood deck and many other amenities. They tried to refinance around the same time Carolyn and Patrick did. They led the appraiser through their house and received a valuation of a little over $900,000, an extremely low number for the region. The Austins decided to conduct an experiment. They removed anything that would identify the homeowners as black. They took down art, family photos and anything else that could be construed as “African American.” They then called a different appraiser and had a white friend pretend to be the owner of the house. This time, the appraisal came back at $1.4 million. A half a million dollars more than it appraised for when it appeared blacks owned the home. The Department of Justice has filed a statement of interest in the case.
There are other cases of this kind of appraisal discrimination taking place across the country. CNN reports that an African American Indiana woman concealed that the owner of her house was black and used a white “beard” to pretend to be the homeowner. The appraisal with the white owner came back at double what the black woman has been told. Two black professors at Johns Hopkins University applied for a refi for their home in an upscale, predominantly white Maryland neighborhood. Their “white appraisal” came back $750,000 more than what they had initially been given.
This issue is critical for people of color for some many reasons. First, it’s illegal. It violates the Fair Housing Act, the Equal Credit Opportunity Act, the Civil Rights Act of 1866 and, in the Maryland case, the Maryland Fair Housing Laws. Secondly, it contributes to the economic disparity between blacks and whites in this country.
According to the most recently available date, in 2019, the average net worth (defined as the difference between a household’s assets and debts) was $188,200 for white households. For black households, it was just $24,000. White households have 7.8 times the wealth. This is important to this discussion because most wealth in this country is passed down through real estate. According to the Census, only 44% of African Americans are homeowners while 74% of whites are. When you undervalue the homes of people of color, you are diminishing the value of generational wealth to be passed down. Add that to historic housing discrimination and you get why the wealth disparity is so large.
I ran into a man I grew up with recently who was bragging about how the value of his home had skyrocketed to well over a million dollars. The man’s grandfather had purchased the home in 1950 for $9000 and passed it down to his children, who in turn passed it on to him. This, by the way, was at a time when people of color were not allowed to buy homes in that particular neighborhood. They were relegated to homes on “the other side of the tracks” that have appreciated little over the years. There was no wealth to pass down.
With the exception of Carolyn and Patrick, all the people I’ve referred to in the other instances of appraisal discrimination are suing and the Justice Department is looking into it. Let’s hope that this ends this despicable practice. In the meantime, Carolyn has decided that she’ll let Patrick show the condo the next time they want to refinance.