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, Illinois.
Over the past 18 years, home buyers who are Latino and black paid 3.5 percent more than white home buyers for comparable homes in Los Angeles, Chicago, San Francisco and Washington, D.C. The study tracked more than two million housing transactions in those cities. 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.” The 3.5 percent actually translates to $5,000 to $10,000 per sale. Multiply that amount with the average number of times Americans move, every five to seven years, and you will come to a substantial amount.
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 disparities in purchase price were not explained by variation in buyers’ income, wealth or access to credit. Also, the findings did not reveal any clear evidence of racial prejudice or animosity on the part of home sellers, as the premium paid by black and Hispanic buyers did not vary much with the composition of neighborhoods or the race of seller. The researchers said they could not ultimately determine exactly why minority buyers paid more when buying a comparable house. One possible explanation however, is that black and Hispanic buyers were more likely to be first-time home buyers and, as a result, may not be as experienced at negotiating the asking price, according to Pat Bayer the study’s lead author and an economics professor at Duke University. What's more, Bayer noted, minority buyers are shown a limited set of properties by real estate agents and may, therefore, feel like they have to pay more when they see a house that really suits their needs and taste.
Also, 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.
Regardless of the reason, the researchers said the findings show that minorities continue to pay higher premiums for housing years after the landmark Fair Housing Act of 1968, which prohibits discrimination in housing transactions based on race, gender, religion and other attributes. Paying thousands of dollars more for homes makes it more difficult for minorities to build home equity and wealth. Hopefully, this study will be used to determine what can be done to help reduce the disparity between white and minority homebuyers. A positive outcome is that despite the higher prices, Hispanics represented 51 percent (355,000) of a total of 693,000 new homeowners in 2012.