In the Twin Cities South Metro, Middle-Market Homes Are Stuck Between Builder Incentives and Rising Rates

The most competitive segment of the Twin Cities housing market isn’t where most people assume. In the south metro – an area spanning Burnsville, Lakeville, Prior Lake, and surrounding communities – the lower end moves quickly and the upper end has been surprisingly active. The middle of the market is stuck, squeezed by a dynamic that has less to do with demand than with what builders can offer that existing homeowners cannot.

Jason Huerkamp, co-founder of Huerkamp Home Group of Keller Williams Preferred Realty, has operated in this market since 2001 and currently runs a 32-agent team across the Twin Cities. His read on the middle market’s challenge is specific: sellers of existing homes are competing not just on price but on financing terms they cannot match.

The Builder Incentive Gap

National and regional builders operating in south metro developments are buying down mortgage rates for buyers, sometimes offering financing near 5 percent. Buyers purchasing an existing home face prevailing rates around 7.25 percent – which Huerkamp notes is the 50-year historical average for a 30-year fixed mortgage.

That gap reshapes what buyers can afford. A buyer considering a $450,000 existing home may find that a $600,000 new-construction home carries a similar or lower monthly payment because of the rate difference. “That 5 percent interest rate is a lot different than a 7 and a quarter percent interest rate,” Huerkamp says. “It actually takes affordability down by almost 25 percent.”

The dynamic is sharpest where builders are still actively constructing in developments where resale homes also exist. Homeowners who purchased in a new-construction neighborhood three or five years ago now find themselves listing against the same builder who sold them the house – except the builder can still offer rate incentives they cannot. “Who’s going to buy your existing house at a 7.25 percent interest rate when they can probably go get the exact same house but brand new for a 5 percent interest rate?” Huerkamp asks.

Where the Squeeze Shows Up – and Where It Doesn’t

In Burnsville, the struggling band runs roughly from $550,000 to $850,000. But Huerkamp notes that the same dollar figure can sit in a completely different competitive position depending on the city. That range represents the middle of the market in Burnsville; in other Twin Cities communities, it’s the entry point and may be moving quickly.

The upper end of the south metro has been less affected. In Credit River, where the average sale price exceeds $800,000, the builders operating tend to be smaller firms constructing fewer than 30 homes a year – and they aren’t offering the aggressive rate buydowns that larger production builders use. Resale homes in that segment face less direct financing competition.

On the lower end, homes continue to sell. Condos are an exception – Huerkamp says they are sitting longer across multiple cities regardless of price.

Winning on Both Price and Condition

For sellers in the compressed middle, Huerkamp’s advice has shifted from what it was in prior years. “We used to say you either have to win on price or beauty,” he says. “Now we’re telling all of our sellers you have to win on both.” Carpet, paint, appliances, curb appeal, even odor – every element of presentation matters when the alternative is a brand-new home with better financing.

When the main competition was other resale listings, a seller could compensate for dated finishes with a lower price. Now that the competition includes new construction with subsidized rates, an existing home has to justify itself on every dimension at once.

The Huerkamp team coordinates painters, electricians, carpet installers, and even estate sale companies for clients who need to prepare before listing. For a recent client – a retiring couple moving into a 55-and-older community – the team handled everything from soliciting multiple offer types (cash, as-is, and improved-condition retail) to clearing personal belongings through an estate sale.

The Investor Angle

For investors evaluating the South Metro, Huerkamp points to townhomes in the $230,000 to $310,000 range as the current opportunity – a segment where his own team has been actively purchasing over the past six months. He notes that even investors can access some builder incentives on new construction, though typically not as favorable as owner-occupant terms.

The key discipline, according to Huerkamp, is running side-by-side financial analyses of existing and new-construction options before committing. “There are times when the new construction is way better than the existing,” he says.

A Market That Rewards Action Over Waiting

Huerkamp pushes back directly on the idea that buyers should hold out for lower rates. With the 30-year fixed rate sitting near its own long-term average, the case for waiting has weakened with each passing year. “If you would have told me four years ago that we’d still be sitting at 7 and a quarter, I would have told you that’s probably not true,” he says.

He frames the current rate environment as unlikely to change soon, and dismisses the possibility of a return to pandemic-era lows. “If we ever got back to a 3 percent interest rate, something horrendous would have to happen in a geopolitical situation,” Huerkamp says. His view on where rates would need to go to meaningfully shift activity is precise: “If we got down to 5.99, the floodgates would totally open.”

For buyers weighing whether to act now, the calculation comes down to whether the cost of waiting – continued rent, continued price appreciation, and no guarantee of lower rates – outweighs the cost of buying at today’s rates. In the South Metro’s middle market, sellers who price accurately and present well are still closing deals. Those who don’t are losing buyers to builders who can offer a new home with a lower monthly payment.

About the Expert: Jason Huerkamp is co-founder of Huerkamp Home Group of Keller Williams Preferred Realty, a Twin Cities team operating across the Twin Cities Metro, including Burnsville, Lakeville, and Prior Lake, Minnesota, since 2001.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.