The Supreme Court said NOPE

Student loans, houses, interest rates, where’s the good news?

Student loan forgiveness has been overturned, Bennett explains the pause in interest rates, Jon looks at home sales to see where we’re going next. If Airbnbs fail, where does that leave us?

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01. The Supreme Court said NOPE.

From Nate Hoskin, Founder & Lead Advisor

If you have student loans, your reaction to today’s news was most likely, “Well, sh#%”.

We don’t have time to look at the political sides of this situation because as of today, a 60-day timer has started.

On August 30, 60 days from now, student loan repayments will restart. Since nearly everyone has gone more than three years without making payments, I want to share three ways you can prepare for this change.

Tip 1: Start practicing now 

In a twisted sort of way, it’s a good thing that there is a 60-day window. This means there will be two months to try out “paying” your student loans before they come calling. I put paying in quotes on purpose, because actually paying the loans may not be the best use of funds. This will be completely up to you, but these two months present a chance to add to your savings instead. This will also help if payments get pushed back yet again, because you will be able to build savings until they come back around.

Tip 2: Look into income-driven repayment plans

Particularly for fresh graduates who are not earning much, an IDR plan may drastically reduce your payments (or make them $0). Loans on these plans will also be paid for 20 years, with the remaining balance being forgiven at the end of the term if they have not been paid in full.

Tip 3: If you’re truly not ready, defer don’t default

Deferment is always better than defaulting on a student loan. For subsidized loans, they also pause your interest. The only catch is that you have to qualify for deferment based on your current status.

Bonus Tip: Take a mulligan with Fresh Start

If you are currently in default on a student loan (more than 270 days overdue), you can check out the Fresh Start program. The federal government will transfer your loan, put it back in “current” status and remove the default from your credit report. You will also have the opportunity to enroll in an IDR plan.

02. Will home sales wreck the housing market?

From Jon Scott, Lead Author

Out of all the major asset classes I think nothing is more interesting than the housing market right now. No, it's not on fire like it was from 2020-2022, but it is very resilient despite higher mortgage rates--and the fact the federal fund rate is expected to be higher for longer, likely keeping mortgage rates high as well.

The number of homes for sale increased in May, yet prices still accelerated from $430,000 to $441,000 in May. As many marketwatchers have stated, there is a lack of supply in terms of available homes (numbering several million). In fact, 22.7 percent fewer homes are for sale in May compared to last year. Moreover, home prices are still increasing in the largest metro areas with several areas experiencing year over year price gains of more than 15 percent including Los Angeles, Milwaukee, Cincinnati, and Kansas City metros. The largest price decreases included the Austin, Charlotte, San Antonio, and Raleigh metro areas--however none of these metros saw decreases above 8 percent.

Many homebuyers locked in rock bottom rates during the pandemic so we are unlikely to see more homes flood the market even if rates decrease. In fact, a rate decrease may lead sellers to increase prices dramatically, which was the case during the pandemic, making home buying even more difficult for many potential buyers.

What does this mean for homebuyers?

As we reiterate to buyers all the time: there is never a bad time to buy a home; it all comes down to being able to afford the mortgage payment, down payment, and maintenance (both expected and unexpected) on a home of your choice.

03. Explaining The Pause in Interest Rates

From Bennett Fees, Economic Research Associate

In his most recent FOMC press conference, Jerome Powell explained the pause in interest rate hikes, referring back to an outline made at the beginning of the hiking journey. His reasoning of the FOMC’s position regarding interest rates breaks down into three levels:

1. The speed of tightening

2. The terminal level to which interest rates reach

3. The length of time interest rates need to be restrictive

Rather than the decision being a complete overhaul or pivot, Powell’s explanation of the pause is to simply be more tentative regarding the first point. In fact, nearly all of the participants in the decision expect to further raise interest rates this year. Behind this, I see two key reasons for pausing: the previous speed of rate hikes and uncertainty regarding their effect. In terms of the first point, it’s important to remember that when the Fed started raising interest rates, they moved very rapidly compared to previous historical periods.

Over the past 15 months, monetary tightening started with four consecutive 75 basis point hikes, followed by a moderation to a 50 basis point hike in December, followed by three 25 basis point hikes leading to the current pause. As interest rates near the projected terminal rate, Powell saw a benefit in slowing their approach given the long and variable lags of monetary policy which leads to the second point: uncertainty.

With the full effects of the banking turmoil that occurred just three months ago sill yet to be felt, and the uncertainty toward the persistent strength of the labor market despite the previous hikes, Powell has erred toward caution even as his preferred measure of inflation, core PCE inflation (which removes volatile food and energy categories), has remained elevated.

As for the second and third points about the terminal level that interest rates will reach and the amount of time they will be held there, the following graph sums up the committee’s projections.

As it stands, the median participant projects interest rates to reach 5.6% by the end of 2023, 4.6% at the end of 2024, and 3.4% in 2025.

While these projections should not be taken as fate or as a commitment to reach these levels, it does provide insight into the general length the committee thinks it will take to overcome this period of inflation.

Importantly, this is only the case if a recession is avoided. If a sharp economic downturn arrived, interest rates would almost certainly drop much quicker than the chart currently projects. In either case, stick around for more updates!

Our knowledge is a little island in a great ocean of non-knowledge.

- Isaac Bashevis Singer

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