CAN URBAN INDICATORS PREDICT HOME PRICE APPRECIATION - IMPLICATIONS FOR REDLINING RESEARCH

Economists commonly control for neighborhood indicators, such as media n income, in underwriting models that test for redlining. Many such in dicators are highly correlated with neighborhood racial composition an d therefore have the capacity to ''explain away'' the role of race in lending decisions. This paper argues that indicators should be include d in models of underwriting only if they affect future home prices, an d hence the value of the default option, in a consistent fashion. Test ing the effect of nine census variables, taken from two recent redlini ng papers, on California tract appreciation from 1986 to 1994, a consi stent relationship between indicators and home price is not found.