The FRED graph above shows home values for four classifications of neighborhoods from 1930 to 2010. The lowest values (and highest levels of risk) are shown by the red line, which was an intentional choice: Red is the color used in 1930s city maps to mark the residential neighborhoods where lenders deemed they were most likely to lose money when making mortgage loans. And that color gave rise to the term “redlining.”
After the Great Depression (1929-1933), the federal government tasked the Home Owners’ Loan Corporation (HOLC), among several other agencies, with overseeing the work of residential lenders. The HOLC designed a set of rules to appraise the value of properties, and these appraisals took into consideration local housing market conditions as well as the demographic and economic characteristics of the neighborhoods.
Between 1935 and 1940, the HOLC used those rules to draw maps of 239 cities across the U.S. In each city, neighborhoods were graded and city maps were shaded:
- Grade A: “Best” (shaded green), where properties were expected to increase or maintain a high appraised value. This grade represented the lowest default risk for mortgage lenders.
- Grade B: “Still desirable” (shaded blue), where properties were expected to maintain their appraised value. This grade represented an acceptable risk of default for mortgage lenders.
- Grade C: “Declining” (shaded yellow), where properties were expected to lose their appraised value. This grade represented a high risk of default for mortgage lenders.
- Grade D: “Hazardous” (shaded red), where properties were old or nearby unattractive or unhealthy industrial areas, therefore having minimal value. This grade represented a dangerous risk of default for mortgage lenders.
To learn more about this topic, see this Page One Economics essay.
FRED has added 20 data series from the working paper “The Effects of the 1930s HOLC ‘Redlining’ Maps” by Daniel Aaronson, Daniel Hartley, and Bhashkar Mazumder. Those economists matched U.S. Census data collected between 1930 and 2010 to the available geocoded HOLC maps of 149 cities.
The data in the graph are the inflation-adjusted median home values in each neighborhood: “Median value” means that, in that neighborhood, half of the houses are priced above that value and half are priced below that value. In other words, median value is the typical home value.
The lasting impact of the HOLC maps on home values is visible in the layering of the data series: Up until 1990, redlined neighborhoods consistently recorded the lowest home values. In the following decades, gentrification closed the value gap with traditionally more attractive neighborhoods.
Stay tuned to the FRED Blog, as we’ll discuss other data series in the Aaronson, Hartley, and Mazumder paper that relate the HOLC mortgage-lending maps to the practice of racial segregation in housing.
How this graph was created: From FRED’s main page, browse data by “Release.” Search for “The Effects of the 1930s HOLC ‘Redlining’ Maps.” Select “Summary Statistics” and under “Panel C. Home Values” check the box to the left of each of the four HOLC neighborhood categories. Next, click on the “Add to Graph” button. Lastly, from the “Edit Graph” panel, select the “Format” tab to match the color of each line to their HOLC designation and to turn off the “Recession shading.”
Suggested by Diego Mendez-Carbajo.