Is Housing Discrimination Diminishing?
New Research Examines Unequal Treatment Today

Introduction

Minority groups have long encountered various forms of discrimination in their search for homes. While indications show that mechanisms such as fair housing laws are reducing some forms of unequal treatment, other signs point to a continuing problem of discrimination. The current rate of homeownership reflects the mixed message of housing discrimination today: although the minority homeownership rate is at its highest point in history, it still falls far below the homeownership rate of non-minority homeowners. Despite great improvements, there is reason to believe that differential treatment exists.

Recent research informs our understanding of housing discrimination for both home buyers and renters, and seeks to report any changes in disparate treatment for home seekers. "Discrimination in Metropolitan Housing Markets: National Results from Phase I of HDS2000" is one such research project conducted for HUD. HDS2000 provides a comprehensive analysis of indicators of discrimination in 23 housing markets. The report shows that while the incidence of discrimination for African Americans and Hispanics has declined since 1989, it still exists at levels higher than those faced by white home seekers. Additionally, the report identifies some disturbing discriminatory trends, including geographic steering for home buyers and difficulty in obtaining financing information. The report, "Risk or Race? Racial Disparities and the Subprime Refinance Market" looks at racial disparities in the subprime refinance market. The study finds that high concentrations of subprime lending and racial disparities in subprime lending exist in all regions of the nation, and that the disparities actually increase as income increases. In conjunction with the study, the Center for Community Change has made available a new database on subprime lending, available to researchers for further analysis on this topic.

With their national scopes and detailed analyses of metropolitan areas, these two reports highlight trends in rental markets and subprime lending and also discuss where additional research, education, and support is needed to combat discriminatory practices.

Despite Gains, African-American and Hispanic Home Seekers Still Face Barriers

"Discrimination in Metropolitan Housing Markets" is based on the latest national Housing Discrimination Study (HDS2000), the third in a series of studies commissioned by HUD that measure patterns of discrimination in urban housing markets. The report details Phase I of HDS2000, in which 4,600 paired tests were conducted to measure adverse treatment for African Americans and Hispanics in home rental and sales markets. The paired test method yields comparable information about how people are treated when searching for a home. In these tests, two individuals - one minority and one white - each respond to housing advertisements with identical credentials in order to directly observe differences in treatment by sales and rental agents. By implementing methodologies similar to those used in the last HDS in 1989, the report assesses change in levels of adverse treatment over time.

The results indicate that the incidence of discrimination has generally declined since 1989 (the levels remained the same only for Hispanic renters). Yet despite the decline, discrimination is still a pervasive problem for African-American and Hispanic home seekers. Incidences of adverse treatment were encountered nationwide, and although some metropolitan areas fared better or worse than others, most were within the national average.

Based on 14 treatment indicators, the summary findings show that discrimination still exists for African-American and Hispanic home seekers in the rental and sales markets. Key findings include:

• Non-Hispanic whites were favored in more than half of the rental tests (52.7 percent), while Hispanics were favored in only 37.6 percent of tests. A consistency measure that reflects the extent to which the non-minority group was favored across the indicators also shows that non-Hispanic whites were more likely to be favored.
  
• Whites were also more likely to receive favorable treatment than African Americans in rental tests. Whites were favored in 49 percent of the tests, while African Americans were favored in 41.1 percent of cases.
  
• In sales tests, Hispanic and non-Hispanic whites both had high levels of preferential treatment, but the difference was not statistically significant. However, the measure of consistency was significant, showing that non-Hispanic whites were more likely to be favored in tests than were Hispanics.
  
• Whites received preferable treatment in 53.1 percent of sales tests, while African Americans were favored in 44.8 percent of the tests. Whites were consistently favored in 17 percent of tests, compared to 12.4 percent for African Americans.

Despite the fact that, in many cases, treatment favoring minority home seekers has increased since 1989, the results show that non-minorities were still more likely to receive preferential treatment.

Steering and Financing Discrimination are Increasing

Although HDS2000 found that most indicators of discrimination have decreased since 1989, two areas that increased significantly are geographic steering and reduced financing assistance. It appears that geographic steering based on neighborhood racial composition appears to have increased significantly for African Americans since 1989. HDS2000 examines this issue in detail, looking at more spatial levels, types of steering, and steering mechanisms than in the past. It found that editorializing - the practice of providing either positive or negative comments about areas to consider - was the most common means of steering among African Americans.

HDS2000 results also found that "Differences in the assistance with financing that real estate agents provide represents the primary source of adverse treatment facing Hispanic home buyers." Non-Hispanic whites were significantly more likely to receive favorable treatment across the category of financing assistance. For example, agents were less likely to offer help with financing, recommend lenders, or discuss downpayment requirements with Hispanic testers than with non-Hispanic whites. This is a decline over 1989 figures when Hispanics received favorable financing assistance treatment in 32 percent of cases. In 2000, Hispanics were favored in only 24.2 percent of the tests.

More Evidence of Barriers to Financing

Borrowers who do not meet credit standards in the prime market often look to the subprime market for loans. When done responsibly, subprime lending offers opportunities to expand lending markets to underserved populations. Yet, research shows that foreclosure rates for subprime loans are high, showing that many subprime borrowers are entering into loans they cannot afford.

The "Risk or Race" national study analyzes subprime lending patterns in all 331 MSAs and ranks MSAs by a variety of measures. Focusing on single-family conventional refinance loans, researchers analyzed 2000 HMDA data to assess racial disparities in subprime lending. In addition, "Risk or Race" explores differences in subprime lending and racial disparities related to both geographic region and the size of the metropolitan areas studied.

The data suggest significant racial disparities in subprime lending that actually increase as income increases. For example, lower-income African Americans receive 2.4 times as many subprime loans as lower-income whites, while upper-income African Americans receive 3.0 times as many subprime loans as do whites with comparable incomes. Using MSA data, the study ranks several U.S. cities with the highest levels of disparity between minority and white homeseekers.

Furthermore, high concentrations of subprime lending and racial disparities in subprime lending exist in all regions of the nation. Each region contains metropolitan areas where the level of subprime lending is above the national average of 25.31 percent. For African Americans, Hispanics, and Native Americans, disparities exist in all regions of the country, reaching as high as 3.25 or more in the Midwest and Great Plains.

The study also finds that high concentrations of subprime lending and racial disparities occur in metropolitan areas of all sizes. Of the 17 metropolitan areas found to have concentrations of subprime lending more than 1.5 times the national norm, 12 have populations below 500,000, while 4 have populations of more than 1 million.

Although the disparities in levels of subprime lending found in this analysis are not conclusive proof of widespread discrimination in the subprime market, the findings raise serious public policy questions for future research.

As both "Discrimination in Metropolitan Housing Markets" and "Risk or Race" demonstrate, mortgage lending market obstacles remain for many. Analyses such as these represent a valuable step in understanding treatment received by minority populations when it comes to buying or renting a home.