Sellers are coming back to the Minneapolis/St. Paul housing market, but so are buyers, and that is keeping the Twin Cities tight.
New listings increased by 21 percent in March compared to a year ago, according to the Minneapolis Area Association of Realtors, but there is still barely a 3½-month supply of homes available at the current sales pace. A balanced market of buyers and sellers is generally around six months.
Read MoreHot LA housing market held back by tight supply
"We're in a seller's market, with homes priced between $250,000 and $500,000 often going in the first week," said John Schuster, a real estate agent with Coldwell Banker Burnet. He even had one house receive 16 offers.
Sales in March were up 30 percent from a year ago, thanks to the new supply. The still-tight supply, however, is pushing home prices sharply higher. The median home price in the area rose 10.5 percent from a year ago to $210,000.
"On average, more people are employed and making more money than they were at this time last year. The jobs picture, as a whole, looks promising," according to the March report from Minneapolis area Realtors.
The key, however, is turnkey. Even with limited listings available, home buyers in the area today want a move-in ready home, especially if they're going to pay top dollar. The market's sweet spot is just below the $500,000 mark, while higher-end homes sit longer. Sellers are finding that even small remodels put their properties ahead of the competition.
The good news for traditional buyers is that investors, who had been strong in the Twin Cities market, have largely been priced out now. The market did not make the top 20 list of metropolitan housing markets offering the best home flip returns in a report released Thursday by RealtyTrac.
Read MoreHouse flippers seeing record returns
As for rising mortgage rates, demand may be strong enough to outweigh them, according to Schuster.
"I am hearing more and more concerns about rising interest rates, but I think the market can handle it. I think if we stay somewhere in the fours we'll be fine. High fours will pull down buying power," he added.