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Estimating Racial Price Differentials in the Housing Market

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  • Patrick Bayer
  • Marcus D. Casey
  • Fernando Ferreira
  • Robert McMillan

Abstract

This paper uses unique panel data covering over two million repeat-sales housing transactions from four metropolitan areas to test for the presence of racial price differentials in the housing market. Drawing on the strengths of these data, our research design controls carefully for unobserved differences in the quality of neighborhoods and the homes purchased by buyers of each race. We find that black and Hispanic homebuyers pay premiums of about three percent on average across the four cities, differences that are not explained by variation in buyer income, wealth or access to credit. Further, the estimated premiums do not vary significantly with the racial composition of the neighborhood; nor, strikingly, do they vary with the race of the seller. This latter finding suggests that racial prejudice on the part of sellers is not the primary explanation for the robust premiums we uncover. The results have implications for the evolution of racial differences in wealth and home ownership and the persistence of residential segregation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18069.

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Date of creation: May 2012
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Handle: RePEc:nbr:nberwo:18069

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  1. John F. Kain & John M. Quigley, 1975. "Introduction to "Housing Markets and Racial Discrimination: A Microeconomic Analysis"," NBER Chapters, National Bureau of Economic Research, Inc, in: Housing Markets and Racial Discrimination: A Microeconomic Analysis, pages 1-8 National Bureau of Economic Research, Inc.
  2. Kenneth J. Arrow, 1998. "What Has Economics to Say about Racial Discrimination?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 12(2), pages 91-100, Spring.
  3. Michael Ewens & Bryan Tomlin & Liang Choon Wang, 2014. "Statistical Discrimination or Prejudice? A Large Sample Field Experiment," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 96(1), pages 119-134, March.
  4. Goldberg, Pinelopi Koujianou, 1996. "Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(3), pages 622-54, June.
  5. Ihlanfeldt, Keith & Mayock, Tom, 2009. "Price discrimination in the housing market," Journal of Urban Economics, Elsevier, Elsevier, vol. 66(2), pages 125-140, September.
  6. John Yinger, 1978. "The Black-White Price Differential in Housing: Some Further Evidence," Land Economics, University of Wisconsin Press, University of Wisconsin Press, vol. 54(2), pages 187-206.
  7. Shamena Anwar & Hanming Fang, 2004. "An Alternative Test of Racial Prejudice in Motor Vehicle Searches: Theory and Evidence," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1464, Cowles Foundation for Research in Economics, Yale University.
  8. Kiel, Katherine A. & Zabel, Jeffrey E., 1996. "House Price Differentials in U.S. Cities: Household and Neighborhood Racial Effects," Journal of Housing Economics, Elsevier, Elsevier, vol. 5(2), pages 143-165, June.
  9. Thomas Cornelissen, 2008. "The Stata command felsdvreg to fit a linear model with two high-dimensional fixed effects," Stata Journal, StataCorp LP, StataCorp LP, vol. 8(2), pages 170-189, June.
  10. King, A Thomas & Mieszkowski, Peter, 1973. "Racial Discrimination, Segregation, and the Price of Housing," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 590-606, May-June.
  11. Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 25-53, March.
  12. Kerwin Kofi Charles & Erik Hurst, 2002. "The Transition To Home Ownership And The Black-White Wealth Gap," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 84(2), pages 281-297, May.
  13. Myers, Caitlin Knowles, 2004. "Discrimination and neighborhood effects: understanding racial differentials in US housing prices," Journal of Urban Economics, Elsevier, Elsevier, vol. 56(2), pages 279-302, September.
  14. John Yinger, 1998. "Evidence on Discrimination in Consumer Markets," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 12(2), pages 23-40, Spring.
  15. John F. Kain & John M. Quigley, 1975. "Housing Markets and Racial Discrimination: A Microeconomic Analysis," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number kain75-1.
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