The new study finds that the racial composition of a neighborhood was an even “stronger determinant” of a home’s appraised value in 2015 than it was in 1980, to Black homeowners’ increasing disadvantage. Analyzing reported home values, Howell and Korver-Glenn found that the race appraisal gap has doubled since 1980: The difference in average home appraisals between neighborhoods that are majority-white and those that are predominantly Black and Latina was $164,000 in 2015, up from about $86,000 in 1980.
Rather than explaining the racial inequity as a vestige of historic segregation, the study finds more culpability in a method used to calculate appraisals today, the “sales comparison approach,” which determines a home’s appraised value by looking at the prices of other similar homes that were recently sold from the same neighborhood. The real estate industry sees this as a race-neutral way of appraising homes so that it doesn’t run afoul of fair housing laws, and it is one of the key criteria used for determining property values. But what makes this method problematic, according to the study, is that it basically grandfathers in racist home pricing that existed before fair housing legislation.
In other words, if an appraiser is calculating the value of a home in a Black neighborhood by comparing it to houses recently sold around it, then chances are she is comparing it to other Black-owned houses that, because of the legacy of segregation, have handicapped values in the market compared to similar homes in white communities appraised at higher prices. The unfairly valued prices of homes in Black neighborhoods before the 1970s thus serves as the baseline for how homes are appraised and priced today. While the Fair Housing Act and Community Reinvestment Act forbade practices like redlining and denying mortgage loans based on race, they did nothing to readjust housing prices in segregated neighborhoods after they were passed.
In other words, past decisions and actions valued homes in white neighborhoods more than homes in black neighborhoods because of racism. Today, appraisals that typically compare homes in like neighborhoods perpetuate those different homes values. The system carries on these inequities even if no appraiser is intentionally racist; the way things are done continues the patterns set decades before.
There is another question here as well: what exactly are appraisals and housing values based on if they contingent on factors like race and not just on the characteristics of the home? Is there inherent value in a particular configuration of home traits – say a three bedroom, two bedroom home with a two car garage – or is the value completely dependent on what society says it is? I know the market is involved and the head of an international appraisal association is quoted later in the article cited above talking about supply and demand. But, if supply and demand says some homes are worth more because of the people who own them and the people in the neighborhood, this does not exactly sound like a desirable “free market.”
In the first three months of 2020, 7.5% of homes sold in the United States were flipped, according to a June report from real estate research firm ATTOM Data Solutions. That’s the highest rate since 2006 and a jump from 6.3% at the end of 2019.
Home flipping rates had dropped drastically in 2007 and began to gradually recover in 2010. The number of flipped homes sold in a quarter peaked around 100,000 in 2005, and while it was on the rise in recent years, a decline began in the second quarter of 2019. In the first quarter of 2020, 53,705 single-family homes and condos were flipped, according to the report.
Profit margins have also dropped since 2019, hitting the lowest return-on-investment since 2011. After plummeting with the national economy between 2006 and 2008, profit margins on flipped homes grew at a steady rate until 2017. But since then, return-on-investment has been on a decline.
Still, it’s too soon to fully grasp how the coronavirus pandemic will impact the house flipping market through 2020 and beyond, ATTOM chief product officer Todd Teta said in a statement.
Flipping homes is by now a well-known process due to TV shows and personalities plus its spread throughout the United States. Yet, alongside other phenomena featured on HGTV and among certain groups (such as tiny houses), it can be hard to know how widespread a phenomena is.
Not surprisingly, these stats suggest flipping homes is connected to broader economic conditions: flipping increases when property values are high and repairs to a home can pay off in a sale. When times are tough and property values stagnate or even drop, there is less money to be made in flipping homes.
In the data above, it would be helpful to see how the national trends compare to patterns in particular places. Does flipping work in the hottest markets where prices are already high (limiting who can flip)? What about Rust Belt communities in good and bad times? Suburbs? Urban neighborhoods? I would guess there is a lot of variation across communities.
It is also worth considering what happens to the housing stock in places where flipping does or does not take place. If flipping happens, older housing stock gains new life. If it does not, do these homes simply keep sliding into disrepair?
Finally, this article starts with an example of a family involved in a flipping business but says very little about the role of small flipping businesses or more corporate operations. Even if flipping activity declines during tougher economic times, does it present opportunities for some to buy up properties to flip later? How do the profit margins differ across different kinds of flippers? Are smaller firms or family-owned flippers viewed more favorably by communities than corporate entities?
The median home price rose 8% year-over-year to $280,600 in March, according to the National Association of Realtors. While buyer demand has softened and sales fell 8.5% that month from the prior month, the supply of homes on the market is contracting even faster, recent preliminary data shows…
What’s more, many sellers have been reluctant to cut prices. Only about 4% of sellers cut their prices in the week ended April 25, down from 5.7% during the same week last year, according to Realtor.com. ( News Corp, parent of The Wall Street Journal, operates Realtor.com.)…
Total listings of homes for sale, meanwhile, have hit a five-year low, while the median listing price was up 1% from last year at $308,000, Redfin said.
The housing market has been undersupplied for years. During the pandemic it may get worse. There were 1.5 million units for sale at the end of March, NAR said, down 10.2% from a year earlier. Homeowners are waiting to list their houses, real-estate agents say, because they have decided not to move or they are worried about letting buyers into their homes during a pandemic.
It will be interesting to see how long this holds up given the rapid spike in unemployment. How many people will be in a position to buy or sell in the coming months? And how long will it take for housing markets to return back to pre-Covid levels of activity?
Beyond prices, which matter to many homeowners who want to do everything they can to keep property values going up, there are additional big issues at play. One is noted above: a lack of housing supply long-term, particularly in certain markets and in certain segments. Another is the possible effects on the mortgage industry. A third is what this does to the idea of housing when there have been two major shocks to housing in the last fifteen years. A fourth is whether people decide they want to live in certain locations more because of health risks. Like other sectors of society, COVID-19 may expose or hasten problems with existing issues.
The 1,570-square-foot house built in 1978 on 2 acres in an unincorporated area of the county was recorded in 2019 tax rolls with a market rate value of more than $987 million and an overestimate of about $543 million in taxable value. In reality, the property should have only had a 2019 taxable value of $302,000, according to county property records.
That error — which the Wasatch County assessor explained possibly occurred when a staff member may have dropped their phone on their keyboard — has resulted in a countywide overvaluation of more than $6 million and revenue shortfalls in five different Wasatch County taxing entities.
The biggest impact was on the Wasatch County School District, unable to collect nearly $4.4 million already budgeted.
Wasatch County officials say they “deeply regret” the error and are reviewing policies and procedures to ensure it never happens again. But they’re also warning Wasatch County taxpayers they will likely see an increased tax rate over perhaps the next three years to make up for the lower amount collected in 2019.
Communities rely on correct property assessments to lead to paid taxes which then generate monies for local governments and services. If something goes wrong in that pipeline – here it was a wrong value which was not caught for months – then essential services may not be provided. This all happens in the background, making it essential infrastructure that like other public works do not often get recognized unless it goes really wrong.
One thought: could the software or databases have a built-in checker that would flag significant year-to-year changes? In this case, a significantly higher assessment one year could trigger a warning to check the numbers again.
A second thought: do we know anything about the correctness of entries in such databases? Are they 99% accurate, 99.9% accurate, 99.99% correct? Even at these high rates of accuracy, a few incorrect values could make a difference.
The housing market doesn’t yet factor in the risk of climate change, which is already affecting many areas of the U.S., including flood-prone coastal communities, agricultural regions and parts of the country vulnerable to wildfires. In California, for instance, 50,000 homeowners can’t get property or casualty insurance because of the increased risk to their homes.
Yet for now, no mortgage lender, portfolio manager or buyer of mortgages takes into account climate-induced floods, except to determine if a house sits in a 100-year floodplain at the time the mortgage is issued, said Michael Berman, a former official with the U.S. Department of Housing and Urban Development and former chairman of the Mortgage Bankers Association.
Once lenders and housing investors do start pricing in such risks, “There may be a threat to the availability of the 30-year mortgage in various vulnerable and highly exposed areas,” Berman wrote in a recent San Francisco Fed report. He predicts lenders could “blue-line” entire regions where flood risks are high — a reference to redlining, the practice of refusing mortgages to minorities…
Said Cleetus: “My biggest fear, honestly, is that the markets will get out ahead of our policies, and we see a situation where property values do start to decline, and small communities that rely on a lot of property tax revenue won’t be able to deal with it.”
It will be interesting to see who (1) pursues this as a competitive advantage and (2) how federal policy plays into this. In a quest to get ahead of the rest of the market, could someone come up with a unique mortgage for areas with more climate change risk? Discussions about whether federal money should be used in places prone to natural disasters has been going for decades (see Hurricane Sandy or discussions about resilient cities).
Much of the article focuses on how the lack of mortgages in certain areas would lead to decreased property values and then a downward spirals as communities would not be able to generate as much tax revenue. This could also work the other way: imagine communities where only the really wealthy can live because they do not need traditional mortgages. They could come in and gobble up real estate with lowered values. Either way, the result could be increased inequality in affected areas.
Decades ago, a generation of America’s wealthiest, raised on television shows like “Howdy Doody” and “The Lone Ranger,” headed west with dreams of owning some of the country’s most prestigious ranches. Now, as those John Wayne- loving baby boomers age out of the lifestyle or die, they or their children are looking to sell those trophy properties…
Jeff Buerger, a local ranch broker with Hall & Hall in Colorado, said there are more large trophy ranches on the market right now than he can recall in his nearly three decades in the business. There are about 20 ranches priced at over $20 million on the market in the state, according to a Wall Street Journal analysis of listings…
Unlike other sectors of the U.S. high-end real-estate market, ranches can’t fall back on international purchasers. Broker Tim Murphy said there is virtually no demand for ranches from international buyers, many of whom “don’t get it.”…
“The last wave of buyers was the baby boomers who fell in love with John Wayne and wanted that experience for themselves,” Mr. Buerger said. “Today, it’s more about conservation. You’re starting to hear more landowners talking about wildlife habitat enhancement and ecological work.” Other targeted groups include wealthy families from the East Coast or Silicon Valley.
I would guess this is not just about baby boomers: it is about broader conceptions of what is the ideal property if someone came into significant money. The implication in the story above is that media, particularly John Wayne films, created a desire for these locations. Presumably, other media depictions would fuel desires for other properties. Depending on the tastes and background of buyers, this could range from:
1. Pricey downtown condos or penthouses in the middle of urban action (whether in well-established wealthy neighborhoods or in up-and-coming places).
2. Suburban McMansions that offer a lot of space and unique architecture.
3. Traditional mansions with sprawling homes whose size and design imply old money (in contrast to the flashy yet flawed McMansions).
4. Impressive vacation homes right on desirable beaches.
Perhaps the trick of any of these is to try to ensure that there are future buyers for your property. If demand drops, your hot high-status property may not hold up as a desirable location for the long-term.
In a recent walk along New York’s High Line, I was reminded of two competing claims about how parks enhance nearby land uses.
In SimCity’s take on urban planning, building a park was a good way to help adjacent properties. If nearby residential and commercial properties suffered from low property values – perhaps due to higher crime rates or locations near industry – building a park could help enhance their values. This seems to make intuitive sense: people like being near greenery and this land use can distract or suppress less desirable land uses.
Jane Jacobs, in contrast, suggests parks are not the automatic panacea some planners suggest. More important than simply having green or recreational space is having a steady mix of people flowing through and around the park. It is human activity that makes the park, not just green space. Indeed, negative activity can thrive and recreational space can easily become part of a dull or blighted area.
In a simplistic take, the High Line seems to support both of these views. The conversion of an unused railroad line to a thriving park has enhanced nearby property values. The park is regularly filled with people – from tourists to local walkers to vendors – during much of the day. This is a success story for both the SimCity and Jane Jacobs school of urban planning.
Yet, how exactly such an urban space came about and has both positive (new development!) and negative (those same values limiting who can live nearby!) consequences is more than just plopping a park into an area that could use more development. If it worked this way, every city would have such a successful project.
In a complex environment like Manhattan where land is highly prized and regulated, putting together such a project takes collective efforts spanning activists, residents, local officials, developers, and others who have an interest in this land and who may have competing interests. Property values may indeed be high and the park full but the long-term effects of this on the neighborhood and the city are harder to assess.
While Hispanic homeownership rate is on the rise, the black homeownership rate has fallen 8.6 percentage points since its peak in 2004, hitting its lowest level on record in the first quarter of this year, according to census data.
This divergence marks the first time in more than two decades that Hispanics and blacks, the two largest racial or ethnic minorities in the U.S., are no longer following the same path when it comes to owning homes.
Analysts say black communities have struggled to recover financially since the housing crisis, which has kept homeownership out of reach. A decades long legacy of housing segregation has also made many would-be black buyers wary of returning to the market after losing their homes…
Homes in neighborhoods with a high concentration of white borrowers on average have seen their homes appreciate 3% from 2006 through 2017, according to the study. However, homes in neighborhoods with a concentration of black borrowers on average are worth 6% less than they were in 2006. High-income black borrowers have concentrated in neighborhoods where homes have lost 2% of their value, compared with white borrowers, who have concentrated in neighborhoods where homes have appreciated 5%.
This is a contributor to inequality that gets relatively little attention. If homeownership rates are low for a particular group, not only does that mean a different present experience (renting versus owning), it has significant long-term consequences for building wealth. When whole neighborhoods have relatively low homeownership rates plus the properties there do not appreciate much, the effects can last decades.
Perhaps you thought the last decade’s global economic meltdown, which crushed stock prices and McMansion values, would most hurt the wealthy. Nope. The gap between rich and poor in the U.S. expanded in the aftermath of the Great Recession. The (sarcastic) good news: America’s wealth gap expanded less than Bulgaria’s between 2010 and 2017.
While the McMansion became an important symbol, housing prices almost across the board declined precipitously. Not just McMansions were affected. And since most American single-family homes are not McMansions, it seems a bit odd to single them out here. Many Americans who would not or could not purchase McMansions felt the effect of declining property values.
Housing construction declined during and stayed depressed for a number of years after the economic crisis. Even during this down time, builders continued to construct McMansions. And once the economy started to pick up, more McMansions appeared. While the economic trends certainly affect how many McMansions go up, the style of home has some staying power. Even if such homes helped contribute to the economic crisis, some Americans still want to build and buy them. The value of such homes may not be the only reason people build and buy them.
To propel the movement, he recommends using the term “missing middle housing,” rather than terms such as “upzoning,” “density” and “multifamily,” which he says have a negative connotation.
“I can’t imagine a single neighborhood in the country where people will get excited about the term ‘density,’ ” Parolek said. “Even things like ‘multifamily’ can be a scary term that’s past its life span.”
His larger recommendation is for cities to change their zoning ordinances. Parolek advocates for form-based zoning, which allows more flexibility for what can be built on a property…
“Zoning in and of itself is a system that encourages single-family home construction in cities,” Parolek said. “Most cities don’t have effective zoning for missing middle housing, so the easy thing to do is to build a single-family house. There’s no neighborhood pushback and less risk. There’s a reason it’s being done, but it’s not responding to what the market wants.”
Very few neighbors or communities would be excited to live next to or approve cheaper housing. The assumption is that more expensive housing is good: it will bring in more tax dollars, typically has fewer residents (so lower local costs), and connotes a higher status. In contrast, it is thought cheaper housing brings down surrounding property values and the kind of people who live in cheaper housing are not as desirable as higher income residents.
Would communities react better to “missing middle housing”? Perhaps. Many places talk about the need to have housing where hard working professionals with a stake in the community, like teachers and firefighters, can reside in the place where they work. Or, it is desirable to provide denser housing for young professionals and retirees to keep them in the community. Yet, as Parolek notes, the goal is still to move people toward a single-family home (with some flexibility for townhouses and condos) in the long run. Changing zoning is not easy because many people purchase a home and then work hard for years to protect the value of that home. Cheaper housing may be more acceptable if located away from existing larger and more expensive housing, if it is allowed in the community at all.