Millennials, Racial Bias, Automated Valuations Hot Topics During Webinar


Millennials keeping the market hot, racial bias affecting home appraisals, and automated valuation technology were discussed on Tuesday during a webinar designed to address what mortgage professionals should expect in 2022 and beyond.

Jeremy Sicklick, CEO and Co-Founder of HouseCanary, Inc., predicted millennials would generate demand in the housing market over the next ten years.

“Effectively, demand will continue to exceed supply,” Sicklick said. “As we look forward, really over the decade, I mean, we are very bullish on housing, and that comes back to just the sheer number of Millennials and household formation that’s going to occur. There’s just a massive amount of demand out there.”

Founded in 2013, HouseCanary in San Francisco, Calif., is a national brokerage firm known for real estate valuation accuracy. The company was a co-host of the webinar.

Economists agree: Millennials will drive demand.

Dana Peterson, Chief Economist at The Conference Board, recently wrote a commentary for Barron’s which stated shrinking debt, expanding wealth, growing families, and low-interest rates are driving Millennials – who are now between 25 to 41 years old – out of their parent’s basements and into homes of their own.

Peterson said Millennials represent 22% of the population in the United States. That’s 72.8 million people who are potential homebuyers.

Does that mean people should start putting in offers that are over listing price to compete with the Millennials and investors who are offering cash for homes?

Finance of America Mortgage President Bill Dallas said the question about overbidding is one they get often. The company of more than 3,000 global employees funded 89,729 units and did $29.8 billion in volume in 2020, according to their website.

The mortgage lender, based in Conshohocken, Penn., was also a co-host of the webinar.

Dallas said the good news is that in 2022, probably early, the red-hot market people are seeing right now will subside.

“You’re going to get back to where it’s you’re fighting over value, and some of those values may be lower and some may be higher, so you really need to focus on it. But right now, we’ve got an anomaly, sort of, with originators and we just have to help them remove the contingency quickly. We have to make sure they have certainty with respect to their approval process and that they’re ready to go. Sometimes they are, and sometimes they aren’t,” Dallas said.

Dallas said he firmly believes that the number one social challenge in America today is affordable housing. He said he would do everything in his power to get first-time homebuyers what they need in a sustainable way that is unbiased.

Racial bias is a hot topic in the appraisal world.

Sicklick discussed recent research and articles on the topic of racial bias in appraisals.

Sicklick talked about a recent article in the San Francisco Chronicle. According to the report, court documents show Paul Austin and his wife, Tenisha Tate-Austin, purchased a home in Marin County, Calif., in December of 2016.

The Black couple claims they spent thousands of dollars on renovations. When they went to refinance their home in 2020, defendant Janette Miller concluded that the value was $995,000. Miller knew the couple was African American.

A different appraiser from another company, who is not named in the complaint, inspected the home three weeks after Miller. The Austins erased evidence of their racial identities and asked a white friend to pose as the homeowner during the inspection process.

The second appraiser valued the house at $1,482,500.

“Race was a motivating factor in Miller’s unreasonably low valuation of the Austins’ house, in violation of the Fair Housing Act and related federal and state laws. Accordingly, the Austins seek monetary, declaratory, and injunctive relief,” the complaint states.

Fair Housing Advocates of Northern California, a nonprofit organization headquartered in Marin County, also seeks equitable relief in the lawsuit.

Miller and Perotti Real Estate Apprisals, as well as AMC Links, LLC., are listed as co-defendants.

The complaint refers to a September report from Freddie Mac on a study they conducted to see whether minorities are more likely to receive an appraisal lower than the contract price during purchase transactions.

Their preliminary modeling results suggest that a property is more likely to receive an appraisal lower than the contract price if it is in a minority tract, according to their report.

Writers of the report said the topic of a potential appraisal gap deserves more research.

Can automated valuation models help to reduce racial bias in the mortgage world?

On Tuesday, Sicklick said they are very passionate about this topic at HouseCanary.

“These sound like a lot of one-off stories, but if you look at the Freddie Mac research that was done across 12 million appraisals over the past five years, this has now become a really systemic issue where the appraised values are significantly below the contract price and they become more so as you get into majority Black neighborhoods, majority Latino neighborhoods, majority-minority neighborhoods and there’s a number of issues that were systemically highlighted around how comparables are being selected,” Sicklick said.

Sicklick talked about the results of HouseCanary’s study entitled “Reducing Racial Bias in Home Appraisals Using Automated Valuation Technology.” They found that their comp-based and automated valuation model values tend to become more favorable to homeowners as the percentage of racial minorities in a tract increases, according to the study’s key takeaways.

“What we’re finding is they’re color blind. They don’t care about the color of your skin. They’re objective, and they’re removing the bias and I just believe that is a critical problem to solve. I think others agree as well,” Sicklick said.

Dallas said he has never seen a movement like this.

Dallas said bias is inherent and needs to be addressed to help make things equitable for all races and religions and to solve the equity issues behind affordable housing.

“That is my number one initiative in 2022. Is to make sure that we do that and we put our money where our mouth is and we dig deeper and we fix it,” Dallas said.