The Latest Freddie Mac Report Highlights That Now Is the Best Time to Invest in Real Estate

Why Now is the Time to Invest in Rental Properties in Western WI and the Twin Cities

The current real estate market presents both challenges and opportunities, especially for those looking to buy or sell in Western Wisconsin and the Twin Cities. A new report from government-backed Freddie Mac reveals a striking statistic: there are now 30 renter households for every home for sale. This scarcity of homes combined with increased demand for rentals has made real estate investment in these areas incredibly lucrative—whether you're an experienced investor or someone looking to enter the market. Let’s dive into the key takeaways from this report and explore how they specifically apply to buyers, sellers, and investors in Western Wisconsin and the Twin Cities.

The Current Housing Market: A Lack of Inventory Drives Up Demand

The key takeaway from Freddie Mac’s report is clear: the demand for rental properties is skyrocketing, with 30 renters competing for every available home. The number of renters per home has steadily risen from 10 in 2006 to 30 today, largely due to a lack of available inventory. Several factors have contributed to this, including the 2008 recession, which slowed down home construction and caused lenders to tighten requirements, making it more difficult for many to buy homes. In recent years, this issue has been exacerbated by continued inventory shortages and rising home prices.

For buyers in the Twin Cities and Western Wisconsin, these conditions present both opportunities and challenges. While the demand for homes is strong, many first-time homebuyers find themselves priced out due to the high prices and competition from investors and all-cash buyers. However, those with cash or significant equity may still find value in this market. According to Freddie Mac, in the second quarter of 2024, 53% of the homes financed by Freddie Mac were purchased by first-time homebuyers, thanks to government-backed mortgage programs and down payment assistance.

For investors in the Twin Cities and Western Wisconsin, this scarcity presents a unique opportunity to purchase rental properties. With fewer homes available for sale, and more renters looking for places to live, rental income is becoming more lucrative than ever. Landlords now have the luxury of being selective when choosing tenants, allowing them to target high-quality renters with strong credit histories and stable incomes.

The Impact on Home Prices and Renters

The imbalance between supply and demand has led to rising home prices. As the number of available homes decreases, prices increase, making it harder for potential buyers to afford a home. However, this dynamic also creates a strong rental market. As more people are priced out of buying, many turn to renting, further driving up demand for rental properties.

For sellers, the rising home prices can be a boon—especially if you’re looking to capitalize on the market’s current state. But sellers should also be aware of the increased competition, with investors vying for the same limited supply. This heightened demand means that buyers, particularly first-time buyers, may struggle to find an affordable home in this competitive market.

Landlords: More Power in a Low-Inventory Market

For landlords in both Western Wisconsin and the Twin Cities, the current market conditions are highly favorable. The low inventory means landlords can select tenants from a large pool, allowing them to choose renters with high credit scores and reliable job histories. However, landlords should be cautious when considering rent increases. Recent lawsuits, such as the one against RealPage, highlight the importance of adhering to fair rental practices. As such, landlords should ensure their pricing remains competitive without pushing rents to unsustainable levels.

Equity Gains and Home Renovations

One of the advantages of a high-demand, low-supply market is the increased equity for homeowners. With home prices on the rise, those who own homes in the Twin Cities and Western Wisconsin are sitting on substantial equity. This equity can be tapped into for home renovations or reinvested into additional properties, creating a potential snowball effect for wealth-building.

For those considering buying a home in this market, the strategy of improving the value of the property—through renovations and upgrades—can help create long-term financial gains. Harvard University’s Joint Center for Housing Studies predicts that spending on home renovations will rise to an annual rate of $477 billion by 2025. Homeowners and investors in both Western Wisconsin and the Twin Cities can take advantage of these trends by investing in home improvements to increase property value.

How Low Inventory Affects Buyers and Sellers in Western WI and the Twin Cities

For buyers in the Twin Cities and Western Wisconsin, the lack of inventory means competition is fierce. First-time homebuyers, in particular, may find it increasingly difficult to find affordable homes. Many are forced to look for alternatives like renting, moving in with family members, or considering smaller or less expensive properties than they initially planned. However, those willing to be creative and flexible with their purchasing decisions may still find opportunities to purchase homes or properties that fit their budget.

Sellers, meanwhile, benefit from the high demand and low inventory. However, they must be mindful of the increasingly competitive market. All-cash investors and individuals seeking long-term wealth through real estate are actively vying for the same properties. This creates a pressure cooker for those looking to buy a home to live in rather than invest.

The Path Forward for Investors in Western WI and the Twin Cities

For real estate investors, the current market offers a wealth of opportunities. With rents rising and the pool of renters growing, it’s a prime time to own rental properties that produce steady cash flow. However, buying rental properties in this market is not without its challenges. As Freddie Mac points out, affordability is a significant issue, especially for those trying to break into the market.

Investors can still benefit by leveraging creative financing strategies, such as BRRRR (Buy, Rehab, Rent, Refinance, Repeat), rent-to-own agreements, and subject-to deals. In particular, focusing on emerging neighborhoods or properties in need of renovation can provide opportunities to secure better deals, even in a competitive market. By using cash flow to build equity and reinvest in future opportunities, investors can continue to grow their portfolios despite high prices and interest rates.

Conclusion: A Challenging Yet Rewarding Market for Real Estate Investors

While buying a home may feel out of reach for many first-time buyers in the Twin Cities and Western Wisconsin, this is a golden moment for investors to capitalize on rental property opportunities. With a growing number of renters and limited housing inventory, real estate investments offer the potential for strong returns through rental income, property appreciation, and tax benefits.

For buyers looking to purchase homes to live in, creativity will be key—whether that means considering alternative financing options, moving to a less expensive area, or focusing on homes that offer room for growth. Similarly, sellers can take advantage of rising home prices, but should be mindful of the competitive nature of the current market.

Ultimately, whether you’re a first-time buyer, a homeowner looking to sell, or an investor seeking rental property opportunities, the current real estate landscape in the Twin Cities and Western Wisconsin presents both challenges and rewards. By understanding the trends shaping the market, you can make informed decisions that align with your long-term goals.

Read the full article from Blogger Pockets here:  https://www.biggerpockets.com/blog/freddie-mac-report-says-there-is-30-renters-for-every-house