What Homebuying Moves Are Minnesota’s $250K Earners Making?

Households earning under $250,000 make up the vast majority of homebuyers in Minnesota, encompassing middle-income and even many families. Let’s look at their homebuying trends from 2018 through 2023, including owner-occupied residential purchases and vacation homes and investment purchases. How do these significant sector of home buyers impact the wider real estate market in Minnesota?

Overview of Minnesota’s Housing Market (2018–2023)

Minnesota’s housing market from 2018 to 2023 was characterized by strong buyer demand and limited supply, leading to rising prices and intense competition. The state’s overall homeownership rate stood around 72%, one of the highest in the nation, reflecting a long-standing culture of homeownership.

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The supply of homes for sale was historically tight – the months’ supply of inventory statewide stayed well below the balanced level of 5.5 months throughout this period. Since 2014, the market was “tight,” meaning there were more buyers than homes, which put upward pressure on prices. By early 2023, the inventory of homes available remained roughly half of what it was in 2018.

Price Trends and Affordability

Home prices rose dramatically during this period. Median sale prices in Minnesota climbed from roughly the mid-$200,000s in 2018 to around $320,000 by early 2023. Statewide, prices hit record highs in 2021–2022 amid fierce bidding wars and then began to level off in late 2022 as interest rates jumped.

The Minnesota Realtors Association reports that the statewide median price increased about 35% from 2018 to 2022. In the seven-county Twin Cities metro, the median rose from approximately $270,000 in 2018 to $365,000 in 2022. This rapid price appreciation far outpaced income growth and made it harder for moderate-income buyers to afford homes.

By 2022, only 16% of homes sold in Minnesota were priced under $250,000, and just 7% were under $200,000, underscoring the shrinking availability of starter homes in an era of rising prices.

Market Activity

Home sales volumes peaked in 2020–2021 during a pandemic-fueled boom, then cooled sharply in 2022–2023. There were about 94,000 closed sales statewide in 2021 (a modern high), but only about 77,700 in 2022, a 17.6% drop as rising mortgage rates sidelined many buyers.

New listings also declined, as homeowners locked into low interest rates grew reluctant to sell. Thus, even as demand tempered in 2022–2023, supply remained tight and prices generally stayed high (up only slightly or flat year-over-year by 2023).

Many prospective buyers under the $250K income level found themselves caught between high prices, rising interest rates, and limited inventory, leading some to postpone purchases or expand their search to more affordable areas.

Types of Properties Purchased

Single-Family Homes

Single-family homes were the predominant property type purchased by Minnesota households in this income range. Nationally, about 75% of recent buyers purchase detached single-family houses, and Minnesota’s rates are likely similar or even higher given the state’s housing stock.

Buyers with families or plans to start families overwhelmingly seek single-family homes with yards. In Minnesota’s smaller towns and suburbs, detached houses are the norm. Even in the Twin Cities metro, single-family homes (often suburban) remained the most common choice for moderate-income buyers.

Townhouses and Condos

Townhouses and condos made up a smaller share of purchases but provided important options, especially in urban areas and for first-time buyers. Condominiums and townhomes – which often come at a lower price point than detached houses – attracted some under-$250K households who wanted to break into homeownership without the maintenance of a house.

Around 7% of recent U.S. buyers purchased townhouses/rowhouses, and condos/co-ops typically account for under 10% of sales. In Minneapolis–St. Paul, condos in the city core and townhomes in inner-ring suburbs offered relatively affordable entries into the market for young professionals and downsizing empty-nesters alike.

Multi-family Homes

Multi-family homes (2–4 units) also featured in the purchase trends, though they are a minority of owner-occupant purchases. Some younger buyers, encouraged by the idea of “house hacking,” opted to buy duplexes or triplexes, living in one unit and renting out the others to help cover the mortgage.

This strategy grew in popularity as rents increased and buyers sought creative affordability solutions. In the Twin Cities, there was anecdotal evidence of millennials showing increased interest in duplexes around 2018–2021 as both an investment and a residence, reflecting a local trend of rising rents and property values.

Manufactured Homes

Manufactured homes and mobile homes represent another slice of the market for moderate-income Minnesotans, particularly in rural areas. Manufactured housing communities have long been an affordable homeownership option, although in recent years some of these communities were bought by out-of-state investment firms, leading to rising lot rents.

Households with sub-$250K incomes sometimes chose manufactured homes on owned land or in cooperatively owned parks to achieve ownership at a lower price point, especially in outstate Minnesota.

Housing Mobility Patterns

Young Families and Move-up Buyers

Many moderate-income buyers in their 30s and 40s sought to upsize during this period, moving from starter homes (or rentals) into larger houses as their families grew. Low mortgage rates through 2021 made “trading up” to a bigger home relatively affordable in terms of monthly payments.

In the earlier years of the period, 2018–2019, rising incomes and confidence in the economy also encouraged upsizing moves. However, by 2022–2023, upsizing became more difficult: the combination of high home prices and a jump in mortgage rates meant that the next-level house might be out of financial reach.

Some middle-income homeowners put off upsizing and instead stayed put in their current homes longer, given the cost hurdles in the market. Indeed, by late 2022, housing mobility had decreased – people were moving less frequently due to affordability constraints.

Older Homeowners and Aging in Place

Minnesota’s baby boomers and seniors (many of whom fall under the $250K income mark in retirement) showed a strong tendency to not move unless necessary. Data confirms that most older Minnesotans are aging in place; those aged 65–74 are the least likely age group to move house in a given year.

Only when people reach 75+ (often facing health issues or widowhood) does the annual move rate tick up slightly, and even then only about 7.5% of the oldest seniors move each year. This means relatively few older homeowners were downsizing into condos or senior housing between 2018 and 2023 – the vast majority stayed in their longtime homes.

Home Improvements Over Moving

Given the tight inventory, many homeowners under $250K income who might have upsized or downsized chose instead to renovate and remain in place. Especially after the COVID-19 pandemic began, remodeling activity surged nationally, suggesting people adjusted their current homes to fit new needs (home offices, etc.) when moving was too difficult or expensive.

In Minnesota, a lack of trade-up options meant that a young family might add an addition to their starter home rather than buy a larger house, and an empty-nester might retrofit their house for aging (installing main-floor laundry, for example) rather than relocate. This stay-put trend contributed to lower housing turnover.

Vacation and Second-Home Purchases

One notable trend in 2020–2021 was a surge in vacation home purchases, as some Minnesotans sought second homes for recreation or remote-work retreats. Minnesota has a storied cabin culture – there are over 135,000 seasonal/recreational properties across the state.

During the pandemic, demand for these vacation properties skyrocketed. Real estate agents reported a dramatic spike in vacation-home sales in 2020 and 2021, with buyers snapping up lakefront cabins and rural getaways. Prices for lakeshore properties jumped by double digits in many popular cabin counties – for example, waterfront home prices rose 27% in Aitkin County and 17% in Cass County in 2020.

Many second-home buyers in this period were on the higher end of the under-$250K income spectrum (or above it), since purchasing a vacation home requires substantial resources. A significant share of these sales were all-cash transactions – about 53% of vacation home sales were cash purchases – indicating that equity-rich or investment-minded households were leading the charge.

By 2022 and 2023, the vacation-home boom began to cool. As offices re-opened and borrowing costs rose, fewer households were in the market for a discretionary second property. Nationally, mortgages for second homes plummeted 40% in 2023 compared to 2022 (and were down 65% from the pandemic peak in 2021).

Financing and Mortgage Trends

Conventional vs. Government-Backed Loans

During 2018–2023, a majority of homebuyers (even first-timers) used conventional mortgages, often with relatively low down payments. National data show that by the early 2020s, 52% of first-time buyers used conventional loans, 29% used FHA loans, and 9% used VA loans.

This represents a significant shift from the years after 2008, when FHA loans were the primary tool for many new buyers. In Minnesota, conventional financing became more accessible to moderate-income buyers due to programs allowing as little as 3% down, provided the buyer had decent credit.

FHA loans remained vital for those with smaller down payments or lower credit scores. Many under-$250K households, especially younger buyers, took advantage of FHA’s 3.5% down option. VA loans were utilized by eligible veteran buyers; Minnesota has a sizable veteran population, and those who qualified benefited from VA’s zero-down financing.

One challenge that emerged, especially in 2020–2021’s hot market, was seller aversion to FHA/VA offers. Real estate professionals noted that in multiple-offer situations, sellers often favored conventional or cash offers, perceiving them as more likely to close without appraisal or condition issues.

Down Payment Assistance Programs

Given that saving for a down payment is usually the biggest hurdle for first-time buyers, Minnesota’s robust network of assistance programs was a key financing element. The Minnesota Housing Finance Agency (MHFA) offers entry-level mortgage programs coupled with deferred or low-interest loans to cover down payments and closing costs.

Many cities and nonprofits also offer down payment assistance grants or loans. From 2018 to 2023, thousands of households under $250K income leveraged these programs to achieve homeownership. Minnesota Housing’s median first-time homebuyer income was around $74,000, and they provided over $1.3 billion in home loans in 2022 alone, often paired with assistance.

In 2022–2023, a new initiative – the First-Generation Homebuyers Down Payment Assistance Fund – was launched to specifically help first-generation buyers with their down payments. This program recognized that those whose parents do not own homes (often from historically marginalized groups) have extra barriers in accumulating down payment funds.

Interest Rate Impacts

Households in this period benefited from historically low interest rates through 2021. Many buyers locked in 30-year fixed loans at 3–4% rates, which kept monthly payments manageable even as prices rose. In 2022, rates spiked above 6% for the first time in over a decade, dramatically reducing affordability.

A buyer in 2021 could afford a home approximately $50,000 more expensive for the same monthly payment compared to a similar income buyer in 2023, simply due to the rate difference. This rate environment in 2022–2023 forced some borrowers to consider adjustable-rate mortgages or buydowns, though most still opted for fixed loans and adjusted their target price downward.

Many existing homeowners who had refinanced or purchased at low rates stayed put (the “lock-in effect”), further constraining supply for would-be buyers.

First-Time Buyers and Demographic Trends

Decline in First-Time Buyer Share

Nationally and statewide, the share of home sales going to first-time homebuyers dropped to historically low levels by 2022. The National Association of Realtors reports that first-time buyers made up only 26% of home purchases in 2022, down from 34% in 2021 and the lowest on record. Another NAR survey found just 24% first-time in the 2022–23 period.

In Minnesota, industry observers saw the same trend – entry-level buyers were getting squeezed out by rising costs and competition. The Twin Cities in particular became a “cash-rich” market favoring repeat and investment buyers, meaning many renters who would normally transition to ownership faced an uphill battle.

Older First-Time Buyers

Those renters who did manage to buy their first home were, on average, older than past generations. The median age of first-time homebuyers climbed into the mid-30s by the early 2020s. National data shows the median first-time buyer age jumped from 33 to 36 between 2021 and 2022, and then to 38 by 2023.

High home prices, student debt, and difficulties saving for down payments all contributed to Millennials delaying homeownership. In Minnesota, this meant more people renting into their 30s and even 40s before buying (if they bought at all).

The aging of first-time buyers also reflects that many needed to accumulate savings longer or wait for dual incomes (marriage or career advancement) to afford a home. Meanwhile, the typical repeat buyer age also increased, indicating that older generations are both staying in the market and potentially outcompeting younger buyers for homes.

Demographic Shifts and Disparities

Minnesota has one of the nation’s largest racial homeownership gaps – about 77% of white households own homes versus only around 51% of households of color. Between 2018 and 2023 there was a concerted effort by state agencies and nonprofits to boost homeownership among Black, Indigenous, and other communities of color.

By 2022–2023, Minnesota Housing reported that 23% of all home purchase borrowers statewide were BIPOC (Black, Indigenous, and people of color). This is still far below their share of the population, but it’s an improvement from earlier years.

In Minnesota Housing’s own first-time loan programs, 37–40% of borrowers were BIPOC by 2021–2022, indicating that targeted programs are helping increase minority homeownership. The period also saw the launch of culturally specific homebuyer education and “pathways to ownership” initiatives.

Regional Variations: Twin Cities vs. Greater Minnesota

Twin Cities Metro

The 7-county Minneapolis–St. Paul metro area experienced some of the strongest price gains and tightest inventory in 2018–2023. The median sale price in the Twin Cities region reached $365,000 in 2022, well above the statewide median (~$320K).

This meant under-$250K income households often had to look at the lower end of the price spectrum, which became increasingly scarce inside the metro. By 2022, multiple offers were common on any “affordable” listing in the cities or inner suburbs. First-time buyers often expanded their search to outer-ring suburbs or even exurban communities to find houses in their budget.

The metro also saw more condo and townhouse purchases than rural areas, simply because such attached units are available (especially in Minneapolis, St. Paul, and some suburbs). These provided relatively affordable options for moderate-income singles or couples who wanted to stay in the city.

Market dynamics in the Twin Cities were very competitive pre-2023: in the frenzied 2021 market, sellers routinely received over 100% of asking price on average and the months’ supply of homes often hovered near 1 month – an extreme seller’s market.

Greater Minnesota (Rural and Small Cities)

Outside the Twin Cities, housing markets showed a mix of slower-paced trends and some hotspots. In many rural counties, home prices in 2018 were relatively low (often under $200K median), and households under $250K income had an easier time finding affordable homes – at least initially.

From 2018 to 2023, however, even rural Minnesota saw significant appreciation. Some counties experienced 50%+ increases in median sale price over five years. For instance, Aitkin County’s median jumped from about $171K in 2018 to $265K in 2022.

For moderate-income buyers in these areas, housing was still more attainable than in the metro – it was not uncommon for middle-class families in regional centers like St. Cloud, Duluth, or Mankato to buy decent single-family homes for well under $300K in this period.

Homeownership rates are even higher in rural Minnesota than the metro, due to a tradition of owning and generally lower housing costs. Thus, a household making $60,000 in a small town might comfortably buy a home, whereas in the metro that same household would struggle without assistance.

Some buyers from the Twin Cities or out of state moved to rural Minnesota seeking affordability and quality of life, especially during the pandemic. This created unusual competition in small markets that are normally slow-moving.

Comparison: 2018–2023 vs. 2008–2017

The 2008–2017 period began with the housing crash and Great Recession, leading to a buyer’s market with falling prices and abundant supply from 2008 to around 2012. Many under-$250K households at that time were dealing with job insecurity or damaged credit, and homebuying slowed to a trickle.

From 2013 to 2017, the state saw a steady recovery: prices crept back up to pre-crash levels, sales volume rose, and homeownership stabilized. But even by 2017, conditions were far more balanced than the late 2010s that followed.

For under-$250K buyers, this meant that in the earlier period (especially 2010–2015) there were relatively more affordable homes available. In 2010, for instance, a household with $70K income could find plenty of options under $200K as prices were still depressed.

By contrast, in 2021 that same household might struggle immensely as sub-$200K homes had nearly vanished in many markets. The 2008–2017 period (particularly 2015–2017) started to introduce the supply shortages that later defined 2018–2023, but generally, housing affordability was better in 2008–2017.

In financing trends, FHA loans and other government-backed loans were far more prevalent among first-time buyers in 2008–2017, especially right after the crash. Stricter lending standards post-2008 made FHA the go-to for buyers with modest incomes and credit. By 2018–2023, that had flipped – only about 29% of first-timers used FHA, with more opting for conventional loans as credit availability broadened.

In conclusion, 2008–2017 was a period of correction and relative affordability, while 2018–2023 was a period of expansion and escalating affordability challenges. For Minnesota households under $250K, this meant the journey to buy a home went from being a cautious but buyer-favorable environment in the early 2010s to being an aggressive seller-favored environment by the early 2020s.

References

• Housing Trends and Needs in Minnesota in 2023 – Minnesota Housing Finance Agency
• 2023 Disparities Report to the Legislature – Minnesota Housing Finance Agency
• Trending: Vacation Homes – Minnesota Realtors®
• First-Generation Homebuyers Community Down Payment Assistance Program – Minnesota Realtors®
• Tips for first-time homebuyers in Twin Cities’ cash-rich housing market – Axios Twin Cities
• Highlights From the Profile of Home Buyers and Sellers – National Association of REALTORS®
• Demand For Vacation-Home Mortgages Fell 40% in 2023 As Housing Costs Rose to Record High – Redfin News