Columbia realtor doesn’t expect Wednesday’s interest rate cut to largely impact mortgage rates

COLUMBIA, Mo. (KMIZ)

This weeks federal interest rate cut effects everything from car loans to mortgage rates, but the Columbia Board of Realtors isn't expecting mortgage rates to drop by much any time soon.

CEO Brian Toohey said mortgage rates have been steadily dropping for a while already in anticipation of the Fed's rate cut.

"They really have already dropped quite a bit since Mid-July, and so I don't anticipate them to drop a lot further, but they could," Toohey said.

Mortgage rates are sitting at 6.17% on Thursday, according to Mortgage News Daily, which is slightly up from one week ago, but down 1.13% from a year ago. CNN cited Freddie Mac, which says 30-year fixed-rate mortgage averaged 6.09% this week.

Toohey said lower mortgage rates could make the market more favorable for buyers, but he's not sure if that will happen in Columbia.

"We're still seeing prices increase at a pretty high rate compared to other parts of the country," Toohey said. "So, it still might make things more affordable for buyers as they're able to have a lower mortgage payment, but it probably won't have any bearing on prices right now."

Data released Thursday from the Columbia Board of Realtors shows the average sold price of a Boone County home in August was $373,309. There were 183 homes sold in August, which is down from 215 in July and down 10% from August 2023.

Toohey said in Columbia, there is less housing inventory than there are buyers in the market.

If buyers see the rate cuts as an opportunity to get into the market, Toohey said it could cause Columbia home prices to rise due to short supply and increased demand.

"Especially in Columbia, you could see prices actually increase because more buyers might enter the market to take advantage of the lower rates, and so that could push prices up because we have such low inventory," Toohey said.

Associate Dean of Missouri State University's College of Business Jeff Jones said there will likely be more cuts before the end of the year, but the extent of those cuts is still unknown.

"It's hard to say, but I think the trajectory of interest rates in the near term, meaning the next 1-2 years, is going to be probably lower than it is now," Jones said.

Jones does not expect mortgage rates to drop significantly due to these cuts, saying the new normal will likely around 5%.

"I don't expect that we're going to go back to an era where you can get a 30-year mortgage for 2.5-3%. That in and of itself historically is very abnormal," Jones said. "Are we going to end up settling in some kind of a place where 30-year mortgages are say, between 4.5%-5.5.%? That would probably be a more normal scenario."

Mortgage rate cuts do not impact existing mortgages, and anyone wanting to get a lower rate will have to refinance.

"You just need to look at your budget and find out if you're willing to go ahead and refinance and save $200-$400 a month in your payment and just decide if that's worth it for you," Toohey said.

He said refinancing is a personal decision for people to make depending on the rate they'd like to choose and they will need to talk with their mortgage lender.

Jones said effects of interest rate cuts are usually felt within a few days. He said rates have been rising in an attempt to cool inflation, but now the Fed is making cuts to try to steady the job market and increase consumer spending.

"I think as rates go down, people now, for consumption purposes, may be willing to borrow money for purchases at a little higher frequency than when interest rates are high," Jones said.

Jones said the intent of the rate cut is to begin a slow progression downward.