Consumer confidence in capitalism is quickly crashing

The 2020 Edelman Trust Barometer – now in its 20th year – has found many people no longer believe that working hard will give them a better life, a concept that is the cornerstone of capitalism.

Why? Despite strong economic performance, a majority of respondents in every developed market do not believe they will be better off in five years’ time. This means that economic growth no longer appears to drive trust, at least in developed markets. 

Here’s one prevailing viewpoint from the report: nearly half believe capitalism is failing them economically and 56% of respondents believe capitalism does more harm than good in the world.

Everyone’s trust in technology is growing, but more people are beginning to think that technology is changing their lives at too fast a pace and that governments will not be able to effectively regulate the sector. Of particular concern is the growing use of technology that generates and supports the dissemination of non-factual “news.” 

The report notes that there’s one thing that is growing in the wake of falling confidence in capitalism and that is the concept of Brand Democracy. This is the belief that brands, not governments, can be a powerful force for change. A central tenet of brand democracy is that citizens vote with their spending habits and companies reinvest revenue in positive changes, such as the roll-out of 10,000 carbon zero rickshaws from Amazon (our example).

More than 2 million people participate in the ongoing study globally. For the US opinion, Edelman based their findings on the result of 500 college educated Americans ages 25-64, who are in the top 25% of household income per age group in each market, and who report significant media consumption and engagement in public policy and business news.

Freddie Mac offers sweat equity mortgages

Buried in this Washington Post report on sweat equity mortgages (those that require low-income borrowers to work volunteer hours to qualify for a mortgage), was this notable moment: Freddie Mac recently introduced sweat equity to its down-payment options for its Home Possible loan program.

“The Home Possible mortgage requires a 3 percent down payment, but that money can come from a gift, a grant from a down-payment assistance program, family members or your employer,” says Danny Gardner, senior vice president of single-family affordable lending at Freddie Mac in Washington, D.C. in the article.  “Allowing sweat equity is just one more way of adding flexibility to down payment sources.”

Freddie Mac joins the USDA and Fannie Mae, among others, in offering sweat equity mortgages. The Habit for Humanity loan requires 500 hours of community-based manual labor, to give you an idea. But that’s not the only prerequisite. In one community, most of the local sweat equity participants are single-female heads of household with kids, earning an average income of $30,000. That’s equal to about 1/10th of the average home price, and the homeowner must receive financial counseling before qualifying. 

NAR’s findings are troubling. Are these housing markets about to tank?

Last week, the National Association of Realtors published an update to its home affordability index. Up NEXT didn’t take huge notice of it, and it didn’t really pick up any steam in the press.

However, after going back and taking a look, there are some worrying signs to report. A few metros are now showing signs of a slowdown. The factors impacting this prediction could get much worse before they get better, and even the almost always upbeat NAR economist, Lawrence Yun, is sounding a warning.

He said this about 81 cities NAR follows: “Job growth has slowed in these areas in part because limited supply is making homes less affordable,” he said. “As inventory continues to decline and affordability worsens, workers, businesses and companies are less incentivized to do business in these areas.”

Going deeper, there are some housing markets that may be about to tank after experiencing some bubbly home price appreciation.

Prices in Boise jumped 75% in the past few years and now job growth is rapidly slowing down. Considering the mobility of today’s workers, the demand for buying homes may soon dry up. Others under threat: Tampa, Nashville, Louisville… And the list goes on.

Yun says worsening affordability and inventory conditions could leave some of the nation’s previously fast-growing metro areas unable to sustain job and economic growth.

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