Why townhouses are the stars of the Twin Cities area housing market

In an ideal world, Kane Boxell and Jackie Stillwell would swap their rental for a single-family house and be settled before the arrival of their baby in May.

But these aren't ideal times for first-time home buyers.

Higher home prices — and mortgage rates — mean the buyers of a typical Twin Cities-area house would now pay $1,000 more a month than three years ago, when rates were near record lows. So, the couple are pursuing Plan B: buying a townhouse in an east metro suburb.

"Townhouses provide the best look and bang for our buck," Boxell said.

Cash-strapped, budget-conscious buyers have helped make townhouses the latest star of the Twin Cities housing market. During October, townhouse sales in the metro rose 6.5% compared with last year, compared with a nearly 8% decline in single-family sales, according to the latest data from the Minneapolis Area Realtors (MAR).

On their home-hunting quest, the couple are finding townhouses are in much better condition than the single-family houses they can afford. Boxell said the endless maintenance that comes with single-family homes is another mark against that option. "The goal will be to eventually move into a bigger place as our family grows, but for now we will take the convenience."

Townhouses promise maintenance-free living, but also affordability. In October, the median cost of a townhouse in the metro was $305,000, nearly $100,000 less than a typical single-family house, according to MAR. But the median price of a townhome rose 7%, nearly three times more than the price of a single-family house did.

It's not just first-timers who are boosting demand and prices. Builders say a growing number of baby boomers are using the equity in the house where they raised a family to buy decked-out townhouses that give them freedom and flexibility to come and go as they want.

After accounting for about half of all new construction in the mid-2000s, townhouse construction in the Twin Cities metro area cratered after the Great Recession. Today, townhouses account for upwards of a quarter to a third of all new housing for some builders.

"Townhomes now represent a higher percentage of [our] business," said Jamie Tharp, Minnesota division president for Pulte Homes.

This shift, she said, is due to waning affordability caused by rising land and labor costs — and now, higher borrowing costs, too.

In an effort to spur more construction and to alleviate affordability concerns, many communities have also overhauled zoning rules, enabling them to develop higher-density subdivisions, especially in outlying suburbs, where there's more undeveloped land.

This fall, the least expensive townhome on the Builders Association of Minnesota's Fall Showcase was in Ramsey, where Lennar was offering a three-bedroom for $322,990. The most expensive was in Edina's Pamela Park neighborhood, where Radiant Design Build is building a 2,680-square-foot side-by-side twin home that was priced at $1.295 million, complete with an outdoor amenity terrace with room for cabana fire pits and grilling stations.

Charlie Pfeffer, a land buyer and developer with Pfeffer Real Estate, said that during the townhouse boom of the late aughts, most townhouse builders were catering to entry-level buyers.

"In 2008 or 2009, if you told me people would be spending $1 million on a villa, I would have said, 'Get some Windex for your crystal ball,' " he said. "It amazes me."

Rising land prices have changed the playing field for developers, forcing a growing number of them to build more houses on smaller lots, he said. Pfeffer remembers when lots in Maple Grove sold for $20,000; they now go for more than $150,000.

That shift reflects buyer preferences, as well, as the latest generation of homebuyers seek smaller yards. In 2000, he said, the gold standard was a 90- by 150-foot lot.

"We don't find as many of those buyers," he said. "They don't want the maintenance, and they don't want the worry."

A simpler, lock-and-leave lifestyle is exactly what drove John and Kathy Anderson to swap their single-family house in Minnetonka for a Lakeville townhouse.

"We thought it might be a good time to sell the house and grab some equity and figure out next steps," John Anderson said.

In 2021, after John retired and they became empty nesters, they decided to make a major life change. The couple sold their house, bought a townhome in Arizona and moved into a Twin Cities apartment.

As empty nesters, they loved the flexibility and freedom that came with multifamily living, but they wanted a landing pad that felt more permanent and had more space to host family gatherings and sleepovers with their grandkids.

They bought a three-bedroom "urban townhouse" by RT Urban Homes at Spirit of Brandtjen Farm in Lakeville, where townhomes fetch about $500,000. The development has two clubhouses with swimming pools and workout facilities, plus playgrounds and walking paths.

"The flexibility of being able to lock the doors and leave is huge," Anderson said. "No worries about snow removal or lawn care. We have the same flexibility in Arizona. Sort of the best of both worlds."

Josh Nelson, the real estate agent helping Boxell and Stillwell shop for housing, said townhomes are also attracting buyers who might someday want to upgrade to a single-family house and keep the townhome as a rental. He's also had several clients who have bought townhomes for their kids — and paid cash — so their children don't have to get a mortgage at today's higher rates.

All of that has made townhomes especially appealing in what has become a complex, challenging market, bringing strong offers for his sellers. On average, he said, townhome sellers are getting their full asking price. Some, mostly those in top-notch condition, are fetching even above asking price.

But the hottest commodity, he said, is a townhouse priced at less than $300,000.

He recently listed a 1,753-square-foot townhouse in Fridley for $262,500. Quickly, he got multiple offers for more than the asking price. The winning buyer backed out, so he relisted it. Again, he got multiple offers, and it closed last month for $12,000 more than the sellers were asking.

"If you can get something move-in ready, people will compete for that," he said. "Sellers are getting what they're asking."