Until the end of the Civil War, slavery dominated the landscape for African Americans. During that time, however, there were small pockets of African Americans living in "free" states in the North and increasingly moving to the new American West. Cities were relatively small and compact, with the bulk of the population still living in rural areas, with much more dispersed populations. Following the Civil War, Jim Crow and the Black Codes made economic, and thus residential, choice nearly impossible for Blacks in the South. In the North, the numbers of Black residents remained small.
The 20th century brought with it social, political, and economic forces that directly led to the highly segregated housing patterns visible today. Many smaller communities, particularly throughout the Midwest, but also in the West, had begun practices that systematically excluded people of color in overtly discriminatory ways. Dubbed "sundown towns" for their implicit — and sometimes explicit — rules that people of color were required to leave their borders before sunset, these communities posted signs warning African Americans to leave before sunset or not enter at all, enacted racial ordinances, encouraged racially restrictive covenants, conducted "freeze-out" and "buy-out" campaigns, and participated in overt intimidation often accompanied by violence. The effects of these exclusionary policies are still prevalent today, as nearly all of the Midwest’s sundown towns remain virtually all-White. 
Prior to the New Deal, direct governmental support for segregation "consisted primarily of the judicial enforcement of privately drawn restrictive covenants." Frequently included in property deeds, racially restrictive covenants controlled how property could be developed or used, or who could live on the property. By the 1920s, deeds in nearly every new housing development in the North prevented the use or ownership of homes by anyone other than "the Caucasian race." Many new homes still recorded racially restrictive covenants even after the Supreme Court held them unenforceable in 1948. As a result, people of color were excluded from many communities, limiting where they could settle and beginning the trend toward increased segregation. During the 1920s, property values became tied to race "as a means to legitimize racial exclusion and protect racial boundaries."
By the 1930s, most cities had well-defined boundaries within which African Americans and other people of color were allowed to live. This discrimination was racial, not economic, and even middle class and upper-income African Americans were confined to segregated areas. To accommodate the growing population of African Americans in these increasingly overcrowded areas, single family homes were subdivided into multifamily homes with high cost rentals. By 1940, spatial isolation had become a permanent fixture of the residential structure of African-American community life, and that isolation only increased during the next 30 years.
Other federal agencies were developed during the New Deal to increase homeownership rates among Americans, but in practice these programs generally benefited Whites only. These agencies provided "crucial financial support to the housing industry" and facilitated the movement to the suburbs by making the purchase of suburban homes cheaper than renting in the cities. For example, to "assist" with lending decisions, the Federal Housing Authority prepared "neighborhood security maps" that were based largely on the racial, ethnic, and economic status of residents. Indeed, a national trade association explicitly stated that minorities caused adverse influences upon a neighborhood. The American Institute of Real Estate Appraisers began using a ranking system that assessed risk based on the racial composition of the community, with English, Germans, Scotch, Irish, Scandinavians ranked at the top of the list and "Negroes" and "Mexicans" ranked at the bottom of the list. Lending institutions and the federal government employed underwriting guidelines that favored racially White, homogenous neighborhoods and led to the creation of a separate and unequal lending and financial system.
In addition, federal agencies "endorsed the use of race-restrictive covenants until 1950" and explicitly refused to underwrite loans that would introduce "‘incompatible’ racial groups into White residential enclaves." These government policies were also adopted by the private sector. For example, from the 1930s to the 1960s the National Association of Real Estate Boards issued ethical guidelines that specified that a realtor "should never be instrumental in introducing to a neighborhood a character or property or occupancy, members of any race or nationality, or any individual whose presence will be clearly detrimental to property values in a neighborhood."
The 1950s and 1960s saw the migration of three million African Americans from the South. With the large-scale departure of White Americans from cities to the suburbs came an unprecedented increase in the physical size of the areas in which African Americans lived. This expansion was also facilitated by individuals looking to make a profit, who brought about rapid racial transitions in neighborhoods through the practice of "blockbusting." These individuals sold one or two houses on a block to carefully selected African Americans and then capitalized on the other residents’ fear of declining property values, inducing them to sell their homes at low prices. These homes were then sold to African Americans at higher prices, effectively resulting in a block-by-block expansion of African-American residential areas.
All this activity resulted in intensified residential segregation of African Americans. Between 1950 and 1970, the African-American population doubled in most large Northern cities, but residential segregation was maintained as White Americans put into effect a "policy of containment and tactical retreat before an advancing color line." After the urban riots in the 1960s, the Kerner Commission Report famously noted that the United States was becoming "two nations — one White, one Black — separate and unequal."
In 1988, Congress amended the Fair Housing Act to add persons with disabilities and families with children to the list of protected classes. In addition, the enforcement mechanism of the Act was greatly strengthened by providing an administrative enforcement process at HUD in which HUD findings of reasonable cause and charges of discrimination could be heard by a HUD administrative law judge or in federal court. In addition, HUD and the Department of Justice were authorized for the first time to seek monetary damages for victims of discrimination and civil penalties.[source: http://www.civilrights.org/publications/reports/fairhousing/historical.html ]