Where buyers have slightly better odds in the Twin Cities home market

The last two years have been a vexing time to be a home buyer, and this year isn't looking much better.

At the beginning of the year, there were 25% fewer houses on the market compared with a year ago, and buyers outnumbered sellers in most of the metro.

Though buyers don't have much leverage these days, there are some cities in the metro area where they'll find lower prices and a little less competition, according to a Star Tribune analysis of real estate data for the 100-plus largest housing markets.

Using data on sale price, available listings and how much of the asking price sellers got, the Star Tribune's 2022 Buyer's Index shows the best places to shop are mostly rural communities on the far fringes of the metro and two suburbs, Burnsville and Spring Lake Park.

Tops on the index, which uses 2021 sales data from the Minneapolis Area Realtors, was River Falls, Wis., a college town on the far eastern edge of the Twin Cities metro that's become a go-to spot for first-time buyers including Jessica Lee, who had been renting a cramped apartment in northeast Minneapolis.

"I realized that for the price of my apartment, I could own my own home," said Lee, who works remotely so doesn't have to worry about a daily commute. With a budget of $325,000, her top priority was affordability and quality, so she shopped from one end of the metro to the other.

"I was looking all over the place," she said, "from Bloomington to as far north as Wyoming."

In early December, after a year of shopping and getting outbid 16 times, she looked at a three-bedroom, two-bathroom house in River Falls, about 35 miles east of Minneapolis.

The house, which was built in 1940 and is within walking distance of the University of Wisconsin-River Falls and downtown shops, has a three-season porch, wood floors, a fireplace and room for a home office.

The nearly 1,500-square-foot house, which is on a third of an acre, had just been listed at $275,000. She offered $14,000 more than the sellers were asking and closed on the house in January.

"I wouldn't have been so keen to get a house out here if I wasn't working remotely," Lee said. "If I'm going to be working from home, I might as well have more room and better space."

A few years ago, bargain hunters and first-time buyers found value in Minneapolis and St. Paul and inner-ring suburbs where the houses tended to be older, compact and on smaller lots. That's no longer the case, and bargain hunters are heading to the fringes of the metro.

In May 2021, the average price per square foot for home sales across the metro broke $190 for the first time and hovered around that price for the rest of the year. The top 10 cities on the Star Tribune Buyer's Index sold for about $160 per square foot or less.

At $149 per square foot, River Falls was one of the least expensive communities in the metro. Other affordable areas were Montrose and Watertown, which are both more than 30 miles straight west of Minneapolis.

"You definitely get more for your money the further out you go," said Alyssa Boeckermann, a sales agent in Apple Valley.

Many buyers, she said, want to be in cities or inner-ring suburbs, but they expand their search once they realize how much they'll pay. They're finding better values in exurban areas, where the average price per square foot is much lower.

Boeckermann recently worked with first-time buyers who were living with their parents and were shopping for a starter home with a big yard. All the houses that had the space they wanted in their first-choice southern suburbs were budget busters. They ended up buying a house on acreage in Cambridge, where the average price per square foot was about $150, making it the sixth most affordable market in the metro.

The most expensive houses in the metro area were in Wayzata, where the average price per square foot was $321, followed by Orono and Edina. With an average price per square foot of $223, Minneapolis was the fourth most expensive city on the index, followed by St. Louis Park, where houses fetched an average $217 per square foot. At $150 per square foot, Brooklyn Center was the most affordable inner-ring suburb.

Buyers in the Twin Cities faced a historic shortage of house listings last year. Not because new listings were at an all-time low — that happened back in 2011 and 2012 — but because buyers outnumbered sellers.

When you factor in how many houses sold compared with how many were listed, there were only enough listings on the market at the end of 2021 for about three weeks' worth of sales. That's far from the five- to six-month supply of listings that are needed to be considered a market that's evenly balanced between buyers and sellers.

"Every offer I put in last year was over the asking price; I was going $40,000 over and not getting it," said Seth Marshall, an agent with Northstar Real Estate Associates who works with a lot of buyers who want to live in the north metro.

"You'd pull up to a listing and you'd have 20 cars in front of a house," he said. "At a property in Ramsey, neighbors were sitting on their lawns, drinking beers and watching the cars. It was such a spectacle."

With more than a month's supply of listings at the end of 2021, Clear Lake and Minneapolis had the most options, according to the index. But generally, buyers who want the least amount of competition will find it in several exurbs, including Carver on the west edge of the metro and Somerset and New Richmond, both in Wisconsin.

Though all of these communities are going to be less competitive than many inner-ring suburbs, where there's just a couple weeks' worth of listings, they're still woefully short of house listings.

Betty Most, a sales agent with an office in downtown River Falls, said she listed a little farm house on nearly 5 acres in New Richmond last spring. She got 17 offers on the property and it sold for more than $20,000 above her asking price.

Most said buyers are no doubt seeing the advantage of driving across the border, and that's bringing more buyers to the area, making 2021 her best year for sales in 37 years of selling real estate.

"In years past, a lot of buyers who would buy in River Falls were from River Falls, but there has been a noticeable shift," she said. "In the last two years, with COVID, there are more and more people working from home, so their space needs have been redefined."