Median house price in the Twin Cities breaks $400K for the first time

When Matt Baker started selling real estate about four decades ago, a $100,000 home sale was something to really celebrate, and a $1 million sale wasn’t even imaginable.

Today, after years of steady appreciation, that seven-figure price tag is considered an entry-level house in some parts of the Twin Cities. And just an average metro-area home has never been more expensive.

“People are now matter of fact about it,” said Baker, a Twin Cities sales agent and former president of Coldwell Banker Realty. “It took a while for me to accept that as the norm.”

Last month, home prices in the Twin Cities crossed a new threshold: For the first time, the median price of all home sales in the Twin Cities broke $400,000, according to new sales data from a trio of Realtor groups in the metro area.

While sellers and homeowners are no doubt celebrating that milestone, it brings with it an especially challenging reality for buyers seeking affordability amid already high mortgage rates and overall economic volatility.

Last month, a closely watched housing affordability index — that takes into consideration incomes, home prices and mortgage rates — fell to a new low. Since the beginning of the year, that affordability index has tumbled nearly 7%, making homeownership unattainable for thousands of would-be buyers.

“The big increases we experienced a few years ago have made the cost of purchasing a home a challenge. So any increase today, even if it is in line with inflation, is like pouring salt on our wounds,” said Andrew Babula, director of the real estate program at the University of St. Thomas. “For many individuals, paying over $400,000 for a home can be overwhelming and feel out of reach.”

That new milestone, he said, has more mental than economic significance. After double-digit price gains during the pandemic, buyers just can’t afford to pay much more. So house prices are now rising more slowly, at about the same pace as inflation.

In June, prices eked out a 2.8% annual gain, according to data from the St. Paul Association of Realtors. That was one of the smallest gains in about a year but in line with seasonal averages.

David Arbit, director of research for Minnesota Realtors, agreed that $400,000 is more of an expected benchmark than any sign of resurgence in sales or prices.

Rising incomes, more $1 million-plus sales, an increase in move-up buyers and strong stock market performance through the past couple years have all contributed to rising prices, Arbit said.

The Twin Cities housing market is settling into a new reality after a couple mid-pandemic years of double-digit price gains that record low mortgage rates drove. Those days are long gone, with mortgage rates now hovering at just under 7%. That’s double what they were two years ago but on track with historical averages.

Price gains have been more modest. But still, in less than a decade, they’ve increased about 100%, which has enabled owners to cash in their equity to buy a more expensive home.

Six years ago, a modest, three-bedroom, one-and-a-half bedroom Maplewood house built in the early 1960s sold for $295,000. Last month, it sold for $400,000, about $25,000 more than asking.

And in northeast Minneapolis, which used to be the go-to area for first-time buyers, price gains have been especially strong. A compact three-bedroom house on a small lot sold last month for $400,000. That was also $25,000 more than the sellers were asking and 122% more than it sold for 14 years ago.

So far this year, buyers listed 6,500 properties, about the same as last year, in the 16-county metro. But with closings up only marginally, buyers have more options than they did at this point in 2024.

The Twin Cities closely mirrors what’s happening nationwide. Redfin, the online real estate brokerage, said for the four weeks ending July 6, the median price of all closings across the country was $399,633, a 1% gain from last year and an all-time high.

Babula doesn’t expect a notable drop in home prices in the coming months. But buyers might have more time and leverage to negotiate.

“I think we may see some loosening of prices as inventory appears to be slowly ticking upward,” he said.

Even a slight decline in rates could have a big impact.

“Lower rates may create more demand from lower monthly payments pushing prices upward,” Babula said. “But they could also encourage current owners to sell and enable building, which would increase supply.”

A new National Association of Realtors analysis showed that even a modest drop in mortgage rates is likely to improve affordability.

If mortgage rates fall to 6%, an additional 5.5 million households — including 1.6 million renters — would have enough income to buy a median-priced home. The group said such a decline in rates could also trigger a strong boost in home sales, especially in the Twin Cities metro area, where demand still exceeds supply.

Sharry Schmid, the newly appointed CEO of Twin Cities-based Edina Realty, said the market is at an inflection point, especially for sellers. But slow and steady growth is far more sustainable than the kinds of boom-and-bust cycles plaguing parts of the country — the same areas now seeing declining sales and prices.

“We don’t have the big double-digit appreciation, and that’s a good thing,” she said. “We have a good stable housing market and inventory is continuing to move. And it’s still competitive.”