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The recent literature advances a hypothesis that addresses the possibility of mortgage redlining caused by a dynamic information externality in property appraisals and mortgage lending. In particular, Lang and Nakamura (1993) hypothesize that because property appraisals depend on past transactions, appraisals in neighborhoods where transactions were infrequent tend to be less precise. The greater uncertainty about house valuation in such neighborhoods can lead mortgage lenders to impose stringent requirements on borrowers. Lang and Nakamura's article, like most economic analysis of property appraisals, is theoretical. Using a sample of mortgages purchased by Fannie Mac, we present preliminary research results that cast doubt on appraisal behavioral rules such as weighted averages or backward-looking expectations on which Lang and Nakamura and other theoretical studies are based. Instead, our results refocus attention on the moral hazard issues of appraisal. We find that in more than 80 percent of the cases, the appraisal is between 0 and 5 percent above the transaction purchase price, in only 5 percent of the cases is the appraisal lower, and in 30 percent of the cases, the appraisal and transaction prices are identical. It would take a strong statistical model to generate such occurrences. Our resufls also indicate that appraisal outcomes are used as a risk factor with different weights for loans with different characteristics (loan-to-value ratios and house prices). The results suggest that more empirical investigation of appraisal pracrices be conducted to verify the validity of conventional wisdom embedded in theoretical studies, and we offer an econometric framework toward this end.This paper is a commentary on a model of redlining propounded by Lang and Nakamura (1993). We adopt a two-part strategy. First, we present some pre "hminary empirical evidence that appears to be at odds with the model of appraisals used by Lang and Nakamura and other theoretical studies. Second, we suggest an econometric framework for testing the statistical validity of appraisal bias revealed by our research results.We compare the appraisal price of a property, which is required for underwriting and validation of a mortgage application, with the actual transaction price. The sample consists of mortgages purchased by Farmie Mae. If an appraisal falls below an accepted purchase price, a deal may be jeopardized. In our data analysis, 80 percent of the cases were appraised at values between 0 and 5 percent above the transaction purchase price, only 5 percent of the appraisals were lower than the transaction price, and in 30 percent of the cases the appraisal and transaction prices were identical.

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This paper summarises William G. Grigsby's contribution to our understanding of neighbourhood change. We discuss seven contributions among Grigsby's most-lasting. First, he staked out the boundaries of the still-nascent field very early in his career. Secondly, he situated the subject within the broader framework of metropolitan housing market dynamics. Thirdly, he developed a theoretical framework for investigating the subject that featured the analysis of housing sub-markets, the market process of neighbourhood succession, and residential segregation. Fourthly, he identified the economic, social, institutional and demographic forces that create neighbourhood change. Fifthly, he linked neighbourhood decline and deterioration to the spatial concentration of poverty. Sixthly, he underscored the significance of this understanding for formulating public policies to deal with deteriorated neighbourhoods. And seventhly, he provided a remarkably complete and robust framework for analysing neighbourhood change. This last-mentioned contribution is the culmination of his lifetime work and will prove perhaps to be his most significant. It provides a road map to future research on neighbourhood dynamics that others may wish to follow. It is very important to note that Grigsby's contributions are so foundational to the modern field of housing economics and housing policy that many of the first-generation analysts like John Kain, John Quigley, William Wheaton, Richard Muth and Anthony Downs do not bother to cite his works. Grigsby's contributions have become ingrained in the core of housing policy. The paper concludes by noting that Grigsby did not let the state of technology or the availability of data limit his vision. As a result, his ideas about neighbourhood change remain fresh and will remain important for years to come.