Blacks, Hispanics Pay More For Homes in Chicago, Study Says

African-American and Hispanic homebuyers pay more for homes than white and Asian buyers, according to research by four economists—and the biggest differential they found in the four cities they studied is for black buyers in Cook County…

A single-family home

Photo: Michael Tercha/Chicago Tribune
 

African-American and Hispanic homebuyers pay more for homes than white and Asian buyers, according to research by four economists—and the biggest differential they found in the four cities they studied is for black buyers in Cook County.

For the four cities in the study—Baltimore, Chicago, Los Angeles, and San Francisco—African-Americans on average paid 2.8 percent more than whites. But in Cook County, Blacks pay 5.4 percent more than whites, according to the study titled “Estimating Racial Price Differentials In The Housing Market,” which was initially released in May 2012 but revised and re-released in late April. On the median transaction price of $179,999, the study notes, blacks in Chicago and Cook County would have paid $8,999 more than whites for comparable homes.

In the counties outside Cook, the differential is 2.4 percent, lower than the four-city average.

Chicago and Cook County Hispanics paid a 3.9 percent premium to buy a house, the study said, and in the collar counties the difference is 1.2 percent. The average premium Hispanics pay in the four cities included in the study is 2.7 percent. The premium paid by Chicago/Cook Hispanics comes out to about $7,019.

The data do not point to race-based preferential treatment for white buyers, according to the study’s lead author, Patrick Bayer, chair of the economics department, who grew up in the city’s Chicago Lawn neighborhood. The team of researchers, which included University of Illinois at Chicago economist Marcus D. Casey, controlled for the race of sellers and buyers as well as for several other factors. Their report describes the price differentials but does not conclude why they exist, although—because of the controls—the authors feel confident that racism among sellers isn’t the primary cause.

Instead, Bayer says, key factors may be that Black and Hispanic buyers may have less experience in buying homes and have had more frustration in finding homes that are available to them, so they are less likely to “negotiate hard from the asking price.”

The study covers all homes that sold more than once between 1990 and 2008—in Chicago, that’s 384,000 properties—and how their prices moved on the later transactions. Then each individual home’s price movement was compared to the norm; in Cook County, those that sold to black buyers (regardless of the race of the seller) went for an average of 5.4 percent more than those that went to white buyers. The advantage of a broad study of same-home sales, Bayer explained, is that past studies looked only at what people pay on a one-time basis. Because Blacks and Hispanics frequently have lower incomes and less household wealth than white or Asian buyers, he said, those types of studies tend to show them buying the lower-priced homes in any given area. Looking at price movement from one transaction to the next goes deeper, to how prices change over time.

In an interview Tuesday, Bayer noted that because the rate of homeownership among Blacks and Hispanics is lower than that of whites and Asians, more of the Black and Hispanic buyers in the study would have been first-time buyers. First-timers are typically less experienced with real estate, “and more likely to think they have to pay closer to the asking price,” Bayer said.

The study stretches way back to the pre-Internet days when buyers had to rely much more on a real estate agent to find homes in their price range and desired neighborhood. In the earlier years contained in the study, Bayer says, Blacks and Hispanics may have experienced challenges rooted in racism like not being shown all the available houses so they could develop a detailed understanding of what a particular home is worth vs. the competition, as well as having some white sellers openly reject their interest in a home. Bayer refers to these as “higher search costs” that could prompt those buyers to negotiate less aggressively for fear of having to get out and look for another home to buy. A study of only the later, Internet-saturated years when buyers of all races can do more property research on their own might show a narrower gap, he said.

Nevertheless, Bayer believes that part of the reason Chicago has the largest gap between what blacks and whites pay for homes may be “the historical very rigid segregation of Chicago and Cook County.” He points out that the lingering effect of black-white division on home prices, if there is one, dissipates outside Cook County, where the differential is less than half what it is inside Cook.

Share

comments
11 months ago
Posted by Scott Ward

I'm confused. Are African American and Hispanic home buyers somehow not subject to the same bank appraisals required of white and Asian American home buyers who seek a home mortgage?

11 months ago
Posted by scooby1777

I'm confused. Are African American and Hispanic home buyers somehow not subject to the same bank appraisals required of white and Asian American home buyers who seek a home mortgage?

11 months ago
Posted by Dennis Rodkin

They're subject to the same appraisals. The research that this team of economists completed does not cover that aspect of the differential. Later research may--and probably should--explore that.

11 months ago
Posted by Scott Ward

Dennis, In all the years I've represented home buyers and sellers in Chicago, I've never known a bank to lend a buyer more than the appraised value of a home. And even cash buyers want to know fair market value of a property before they purchase it...

11 months ago
Posted by Stewart

I just heard the author of this article on WBEZ and I feel his comments were racist. To say that certain sellers will make certain ethnic groups pay more is ridiculous. All sellers are willing to make all owners pay more for their homes to make the most profit. As a real estate professional who works in many neighborhood in the city of Chicago there is little racism compared to say the 1980's. All real estate professionals I have ever met do not really care about race, over profit. Yes, there are cultural differences between different groups that do facilitate deals in particular areas, but always profit reins. To imply that appraisers are undervaluing minorities homes is more bunk. I am curious if this writer works in real estate or just writes about it. I do feel a study of this nature is important to level the playing field, but to blame the price deferential on sellers or real estate professional is misplaced.

11 months ago
Posted by Dennis Rodkin

Stewart, I understand what you're saying, but to be clear: those were not my opinions I was expressing. I was reporting the observations made by one of the economists who did the study. Whether those statements are racist is a separate issue. I just want to be clear that I was reporting about the study and what its authors told me.

As we said in that broadcast report you heard, a lead author of the study was scheduled to be on the air with us by phone, but at the appointed time, he wasn't reachable. That left me to report what he had told me in previous interviews.

At the very start of the segment, we said very clearly that the study's authors emphatically do not attribute the differential to racism on the part of sellers. They attribute it to many other factors, but it's all their speculation. They have not analyzed the data to determine why some ethnic groups pay more; they have merely compiled data that indicate that some ethnic groups pay more. They left it to future studies to look for a reason why.

And to answer your question: No, I don't work in real estate. I'm a reporter who covers real estate.

Submit your comment