What's stopping minority residents from buying homes in Phoenix?
- Whites are more than 3 times as likely to apply for mortgages as blacks and Latinos
- Experts, housing advocates point to distrust of housing system built over decades of discrimination
- Loans applications from minorities weren't rejected at higher rates than whites
Fewer Latinos and African Americans are turned down for home loans in metro Phoenix than in many other parts of the U.S.
But in the Valley, where buying a house is less expensive than in most big cities, few would-be homebuyers from those groups apply for mortgages in the first place. That means minority households are missing out on a key opportunity to build wealth, reinforcing racial inequalities.
Whites were more than three times as likely as Latinos or African Americans to apply for home loans in Maricopa County, according to an Arizona Republic analysis of data provided by the Center for Investigative Reporting and the Associated Press.
The 2016 data, adjusted for population size, also shows whites were more than five times as likely to apply for loans as Native Americans.
With the exception of Arizona’s extra-low Native application rates, these trends generally put the Valley in line with other major metro areas throughout the country.
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That’s not a good thing, according to fair-housing advocates and industry professionals.
In some ways, they say, low application rates are an even bigger issue than lending disparities, because they indicate a pervasive — and often well-founded — mistrust of the system. Agents and activists point to a history of predatory lending, recession-era exploitation and periods of political unrest as likely factors.
“We have gained some ground with minorities being able to buy in Arizona, but we have had major setbacks,” said Patricia Garcia Duarte, CEO of Trellis, one of Arizona’s largest non-profit housing groups. “It’s gut-wrenching.”
Support crucial for anxious applicants
For years, Sha Wanda Brewer didn’t think she could buy a house. The process seemed daunting, and the lenders she first contacted were "very rude," she said.
“I don’t think I would have tried to buy if my aunt hadn’t encouraged me so much," said Brewer, 39.
Patricia Evans, a longtime metro-Phoenix homeowner, showed her niece that owning a home could be life-changing in terms of saving money and creating her own space.
Brewer in August bought a $181,000 house in south Phoenix, an area with lower application rates and higher mortgage-rejection rates for African Americans. Maricopa County's roughly 205,000 black residents submitted only 1,900 loan applications in 2016.
“I am one of the lucky ones who had encouragement to buy a home,” said Brewer, who works for State Farm and rented in the Valley for years after moving from California. She credited Trellis, the non-profit housing group, with helping her find a lender and save for a down payment.
Though Brewer didn’t give up on the process, some of her friends did, and others who've heard about bad experiences don’t want to try. So she's been sharing her success story, urging family, friends and co-workers to buy and to ask for help to do it.
“It makes a big difference to have someone in your corner cheering you on,” she said.
Homeownership key stop on road to wealth
Countywide, non-white applications were submitted at nearly half the rate of white applications in 2016.
- Whites in 2016 applied for mortgages in Maricopa County 71,000 times. That equates to a rate of 31 applications per 1,000 county residents.
- African Americans applied for mortgages 1,900 times, at a rate of nine applications per 1,000 residents.
- Latinos applied 10,700 times, also at a rate of nine applications per 1,000 residents.
- Native Americans applied 350 times. That was the lowest rate among minority groups, submitting five applications per 1,000 residents.
- Asians applied 5,400 times. This was the only minority group to apply at a rate higher than whites, submitting 35 applications per 1,000 residents.
Areas where few potential buyers of color applied for home loans in 2016 included census tracts in south Phoenix, Arcadia and near Surprise, Queen Creek and Lake Pleasant, among others.
In some neighborhoods in Fountain Hills and southwest Mesa, whites were more than eight times as likely to apply for mortgages as either Latinos or African Americans, according to The Republic’s analysis.
Those discrepancies matter, because homeownership is the main way Americans accumulate wealth. The median home-owning family is 45 times wealthier than a family that rents, according to the Federal Reserve.
“A big part of that storyline is intergenerational wealth,” said Tatjana Meschede, director of Brandeis University’s Institute on Assets and Social Policy.
She explained the phenomenon this way: Since white Americans tend to be wealthier, they can better manage unexpected expenses or employment gaps without going into debt. That stability allows them to provide more financial assistance to their children, who can then help their children, and so on.
In other words, white Americans today still benefit from the biased housing policies that favored their predecessors in the 19th and 20th centuries.
Though Maricopa County's current homeownership rates weren't available, national census data indicates about 73 percent of white Americans own their homes, while black and Latino homeownership rates hover near 45 percent.
A 2015 analysis by the Institute on Assets and Social Policy explored what would happen to the racial wealth gap if Latinos and African Americans were as likely as whites to own their homes.
According to its projections, the median black household's wealth would jump from $7,100 to $39,200, shrinking the gap between white and black households by 31 percent. The median Latino household's wealth would increase from $8,300 to $37,600, shrinking the gap between white and Latino households by 28 percent.
Though black and Latino wealth still fell far short of the median white household's $111,100, researchers found equalizing homeownership rates had a much larger impact on the wealth gap than equalizing college-graduation rates or income.
“Those findings did not surprise us at all,” Meschede said. “Having a house isn’t the only way to build wealth, but the two have historically been very much linked."
Housing disparities have deep roots
When Latinos and African Americans buy homes, they tend to see smaller returns on their investments, according to the Institute. For every dollar earned by Latino households, white households accrue $1.54; for every dollar earned by black households, white households get $1.34.
That's because homes in predominantly white neighborhoods tend to appreciate faster than homes in predominantly black and Latino neighborhoods.
In south Phoenix, the groundwork for these patterns was laid more than 100 years ago, when the city had fewer than 5,000 residents.
In the late 1800s, the east-west rail line crossing the southern part of the city established a strict residential barrier between the poor black and Latino neighborhoods to the south and the more prosperous white neighborhoods extending north. Deeds for many houses north of the line stated owners couldn't sell to anyone "not of the white or Caucasian race."
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People of color also were denied financial tools that would have allowed them to improve south Phoenix homes. When the federal government created the Home Owners’ Loan Corporation to stanch a flood of foreclosures during the Depression, for instance, black and Latino neighborhoods couldn't get funding through the organization.
The rejections came despite the fact that “housing stock and living conditions (in south Phoenix) were recognized as among the worst in the U.S.,” according to an Arizona State University report on the area’s history.
In the 1950s, as white homebuyers used federal help to lock down low-interest loans and move to the Phoenix suburbs, black and Latino residents again were excluded. If they managed to secure loans, they were typically five-year mortgages — "inadequate financing" that led to shoddily built homes, the report said.
The federal Fair Housing Act of 1968 spurred some improvements, including outlawing deed restrictions based on race.
But decades of discriminatory habits weren’t easily forgotten.
Predatory activity creates lasting doubt
During the housing boom of the early 2000s, Valley lenders again preyed on Hispanic and African-American residents. Mortgage applicants took on bad loans with double-digit interest rates, prepayment penalties and other predatory fees.
The crash that followed disproportionately affected minority borrowers, many of whom lost their homes to foreclosure. Pew Research Center found that the median white family lost an estimated 16 percent of its wealth over the course of the housing crash and recession, while Latino families lost 66 percent and black families lost 53 percent.
“Those properties going underwater has been a big deterrent” as the next generation weighs purchasing a home, said Dulce Matuz, a Phoenix-based real estate agent who works with Latino clients.
“There were people who gave a large amount of money thinking it was for a down payment, and then somebody stole from them," she said. "There's some really big trust issues when the Latino community wants to buy a house now, because it’s felt like everybody’s targeting them instead of providing a service to them.”
Fair-housing advocates say lenders should be flexible when working with Latino applicants who might not have strong credit scores simply because the applicants don’t want to take on the debt needed to build them.
“Many Latinos are getting turned down for loans because they don’t have a bunch of credit cards or car loans,” said Bettina Franco, a HomeSmart real estate agent who previously worked for a lender. “People shouldn’t be penalized for not wanting to take on a lot of debt. They should be rewarded.”
In addition to financial obstacles, the political climate has discouraged some Latinos from applying for home loans, Matuz said: first in 2010, when Arizona passed controversial immigration law Senate Bill 1070; and now, given the uncertainty surrounding the Deferred Action for Childhood Arrivals program.
The future of the initiative — which shielded migrants brought to the U.S. illegally as children from deportation and provided work permits to them — remains unclear after President Donald Trump’s late-2017 decision to phase it out.
“If you were a 'dreamer' and terrified about what’s going to happen to DACA, would you want to buy a house?” said Nate Martinez, a veteran West Valley real estate agent with RE/MAX who has worked with thousands of Latino clients.
Uncertainty about future not a deal-breaker
Carla Chavarria, a 25-year-old dreamer from Mexico, had nearly completed the home-buying process when Trump's DACA announcement came.
The news didn't scare her, she said, but it frightened a lot of her friends.
"A lot of them were like, 'Why are you buying a house at this time? Maybe you should hold off,'" Chavarria said. "I felt like, I can't live my life waiting on these systems. I’m just going to do it."
Unless Congress extends safeguards for dreamers, Chavarria’s protection from deportation will end in 2019. Though no Arizona law prevents DACA recipients or people without legal status from buying property, Chavarria said uncertainty about her future required her to be extra "strategic" as she shopped for a home.
Matuz helped Chavarria during her search.
"Dulce basically said, 'Your rights as a homeowner are a little bit different' — that I have this process that I can follow where I can be OK with having a house here, even though I may or may not be living here," Chavarria said.
"So I looked around the (Grand Canyon University) area, thinking that if I ever needed to rent it out, I could do that," she said. "I also looked at south Phoenix, knowing that the light rail was eventually going to get there."
Chavarria ultimately bought a mid-century home in a largely Hispanic neighborhood near Fifth and Southern avenues, the fourth house she made an offer on. She said she’s spent the past three months renovating her bathroom and kitchen, ripping out her driveway, and landscaping her yard.
"I saw it as an investment," Chavarria said. "But I also saw it as something I could shape and build and make my own."
Advocates: Federal intervention needed
Reversing the trends that make Brewer and Chavarria exceptions rather than the rule will require changes at the federal level, where policies continue to bolster the wealth of already-prosperous Americans.
The Annie E. Casey Foundation found that the wealthiest 5 percent of taxpaying households get more than half of the $400 billion the government provides in annual subsidies designed to promote homeownership, savings, investments and educational access.
The bottom 60 percent sees 4 percent of those benefits, while the bottom 20 percent receives "next to nothing," the foundation found. Black, Latino and Native American households are disproportionately represented in that lower tier.
Fair-housing advocates have proposed a series of solutions to reduce the racial wealth gap through homeownership, including:
- More aggressive enforcement of fair-housing laws.
- More counseling to help potential buyers understand the steps to home ownership and avoid costly mistakes.
- More flexibility in loan requirements, such as for applicants who don’t have high credit scores because they don't have debt.
- More loan-modification flexibility for struggling homeowners, since owners of color are more likely to have subprime mortgages and higher foreclosure risks.
- Expansion of foreclosure-prevention programs and homebuyer-assistance programs.
- Promotion of the federal Family Self-Sufficiency program, which helps housing-voucher recipients and public-housing residents increase financial stability through assets and savings.
"The Fair Housing Act was only passed 50 years ago, but it's disheartening to see how little it has helped,” said Patricia Garcia Duarte, with Trellis. “We aren't at a balanced fair-housing policy for everyone yet. There are still too many barriers for people of color."
How we did it
The Republic analyzed a database of 2016 mortgage applications released through the Home Mortgage Disclosure Act and compiled by Reveal from the Center for Investigative Reporting. The database included information organized by census tract that showed applications and outcomes broken down by race and ethnicity.
To calculate disparities in mortgage applications, The Republic first calculated application rates for each race or ethnicity by dividing the total number of applications for all of Maricopa County and each census tract, and dividing by their respective populations.
We then divided the white rate by the rate for each minority group to determine how much more likely it was for whites to apply for mortgages than people of other races or ethnicities.
The Republic relied on Reveal's statistical analysis of mortgage-outcome data for the conclusion that Latinos and African-Americans in the metro Phoenix area weren't denied loans at significantly higher rates than whites.