The Federal Housing Finance Agency (FHFA) recently published another FHFA Insights blog post addressing the underutilization of appraisal time adjustments by appraisers that is a companion to an FHFA Insights blog post that we reported on previously. In the recent blog post, the FHFA presents the question “Is the racial disparity in underappraisal, or some portion of it, due to racial disparities in the practice of time adjustment?”

As is the case with the prior blog post, the recent blog post (1) focuses on situations in which the appraised value is below the contract sales price, which the FHFA refers to as “underappraisals,” (2) notes that underappraisals are particularly an issue during periods of rapid home price growth, and (3) is based on an analysis of a 5% sample of single-family housing in the Uniform Appraisal Dataset (UAD) that Fannie Mae and Freddie Mac collected covering the third quarter of 2018 through the fourth quarter of 2021.

The FHFA observes that “[w]hen we focus on appraisals below the contract price before time adjustments, larger disparities emerge. [The analysis] shows that, among these appraisals, appraisers ultimately time adjust at a 67 percent rate in white tracts, but only at a 45 percent rate in Black tracts, a disparity of 22 percentage points. We see disparities of 14 and 7 percentage points when comparing Hispanic and no-majority tracts, respectively, to white tracts.” The FHFA notes that “[t]hese simple comparisons of means understate the disparity because average annual house price growth, an important predictor of time adjustments, is 3 percentage points higher in Black tracts during [the analysis] period.” The home price growth rate for the period was 14% in Black census tracts and 11% in White census tracts.

Based on a regression analysis, the FHFA cites a difference in rates of time adjustments that resulted in a property no longer being under-appraised of 52.2% in White census tracts, compared to 23.7% and 16.0% in Black and Hispanic census tracts, respectively.