Competition for Twin Cities homes between $250K and $500K is fiercer than ever

What qualifies as a starter house — and what it means to be a first-time buyer purchasing one— has changed.

And that’s made the Twin Cities’ hottest current price range $250,000 to $500,000.

It’s familiar domain for move-up buyers seeking their next house to fit a growing family and downsizers looking to consolidate now that the nest is empty. But it’s uncharted territory for first-time buyers, who are also older and wealthier than they have been.

That means, roughly, that Gen Z, millennials and baby boomers are duking it out for a dearth of listings. And with buyers outnumbering sellers in that range, those houses garner the strongest offers in the shortest amount of time, according to the latest sales data.

“Under $500,000 is a very difficult situation for buyers to be in,” said Jennifer Livingston, an Oakdale sales agent and president of the St. Paul Association of Realtors.

Homes in that range incur multiple and over-asking price offers, a more common practice during the pandemic, when mortgage rates were half of what they are today.

Now, the price of an average starter home — a property priced in the bottom fourth of all listings — has increased by more than half since 2019, costing $293,910, according to a Realtor.com analysis. Meanwhile, mortgage rates have hovered at just under 7% for much of the past year.

Assuming that rate and a 10% down payment, the monthly mortgage payment on the average Minnesota home increased 123% in the past five years to $1,760, not including taxes or insurance.

“Though home price growth has contributed significantly to declining affordability,” said Hannah Jones, a Realtor.com senior economic research analyst, in a statement, “mortgage rate growth has exacerbated the issue.”

The house-buying equation shifted dramatically during the pandemic, when mortgage rates fell below 4% and caused a buying spree that triggered nearly five years of record price gains.

On the eve of the pandemic in March 2019, the average market time for houses priced at $150,000 to $250,000 was 34 days, according to data from the St. Paul Area Association of Realtors.

Two years later, as mortgage rates fell and the pandemic inspired buyers to upsize their living space, demand for starter houses — and their prices — soared.

In March 2022, the $250,000 to $350,000 price range was the most active segment of the market. Sellers enjoyed nearly 103% of their asking price, meaning most houses in that spread sold for more than the asking price. Those houses also sold in just 22 days, more than three times faster than the $1 million-plus bracket.

Now, higher mortgage rates and limited options have sidelined many buyers and caused demand to flag. But previously owned houses priced from $250,000 to $350,000 still sold in 36 days last month, the fastest of any Twin Cities price range and nearly twice the clip in the $120,000 to $150,000 range.

Part of the reason for that difference is many of those lower-price options are fixer-uppers that are unappealing to today’s buyers. Many are also ineligible for the kinds of mortgages many first-time buyers require.

For example: a Federal Housing Administration-backed (FHA) mortgage, which has long been popular with first-timers. These loans offer more flexible lending requirements and have a lower down payment, sometimes as little as 3.5% of the purchase price. Plus, a borrower’s credit score doesn’t have to be as high.

FHA mortgages have a limit of about $525,000 for a single-family house in Minnesota, more fuel to the flame for the on-fire under-$500,000 price range.

Emily Burleson, who moved back to the Twin Cities with her husband after several years of living in Tampa, Fla., said her recent house search proved that “sellers have the upper hand right now.”

“It felt competitive,” she said, “so we hit it hard.”

She was willing to spend $280,000 to $375,000 but wasn’t wedded to a specific area. So she broadened her search to Minneapolis and St. Paul as well as several inner-ring suburbs.

During house-shopping trips in January, the couple toured about 20 houses, hitting four to five a day. They weren’t the only ones waiting to have a look.

“There were times when we were in a house, and someone was coming in behind us,” Burleson said.

By Feb. 1, she and her husband had made an offer on a rambler in West St. Paul that had most of what they wanted: A sunroom, finished basement and location just a mile from her best friend. What clinched the deal, she said, was a red storage shed in the backyard she spied from one of the home’s windows.

“My mom loved red barns,” Burleson said. “I fell in love when I saw it.”

Even though the house had only recently come on the market, she offered several thousand dollars more than the asking price because she knew there had been other offers. Knowing there was going to be competition, her agent, Cheryllyne Vaz, suggested writing a letter to the seller to express appreciation for the house, especially the red shed.

“It worked,” Burleson said.

Vaz said that in early March, she presented offers on behalf of others buyers. All of them were up against competitors.

“One client beat 18 offers for a house in Brooklyn Park,” she said.

The Burlesons were move-up buyers, but some of their competitors were likely first-time buyers.

As starter homes have become pricier, their first-time buyers have also leveled up in a few ways. On average, first-timers were 38 years old in 2024. That’s three years older than in 2023, according to the National Association of Realtors.

The older the cohort, the more likely they are to have a higher median income that can finance much larger down payments. This further stokes demand for houses in the $250,000 to $500,000 price range.

Last month, that was the only price bracket where buyers outnumbered sellers. In March, there were 2,050 houses for sale in that class, a couple hundred fewer than last year at the same time. In other ranges, listing inventory increased year-over-year.

Sarah Cassavant and Phillip Canada, both in their mid-30s, are among those older first-time buyers. They’d been renting a two-bedroom apartment. But once their lease was up, they decided they wanted more space, including a big yard for a garden and a garage.

With a budget of $350,000 to $400,000, they started looking in early January. During one whirlwind outing, the couple viewed 10 houses within a 21-mile radius in just two hours. All but one of those ended up selling within days of listing. Half sold for the seller’s asking price or more.

After touring a total of nearly 20 houses, their agent told them about a well-kept split-level house in Roseville that another agent in the same office was about to list. Knowing it would be a hot commodity if it went public, they offered to pay the sellers $15,000 more than asking for $395,000 total.

“We were able to snag this one before it went on the market,” Cassavant said. “The spring market is really wild right now.”