Estimating Racial Price Differentials in the Housing Market

30 Pages Posted: 20 Apr 2013  

Patrick J. Bayer

Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Marcus D. Casey

University of Illinois at Urbana-Champaign - Department of Economics

Fernando V. Ferreira

University of Pennsylvania - The Wharton School

Robert McMillan

University of Toronto - Department of Economics

Date Written: March 1, 2013

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.

Keywords: Price Differentials, Housing Market, Home Sales, Racial Differences, Racial Prejudice, Repeat Sales

JEL Classification: H0, J15, K4, R2, R3

Suggested Citation

Bayer, Patrick J. and Casey, Marcus D. and Ferreira, Fernando V. and McMillan, Robert, Estimating Racial Price Differentials in the Housing Market (March 1, 2013). Economic Research Initiatives at Duke (ERID) Working Paper No. 142. Available at SSRN: https://ssrn.com/abstract=2254107

Patrick J. Bayer (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Marcus D. Casey

University of Illinois at Urbana-Champaign - Department of Economics ( email )

Champaign, IL 61820
United States

Fernando V. Ferreira

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7181 (Phone)
215-573-2220 (Fax)

HOME PAGE: http://real.wharton.upenn.edu/~fferreir/

Robert McMillan

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-4190 (Phone)
416-978-6713 (Fax)

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