DULUTH — A few years ago, Amber Johnson would have been an ideal Duluth home buyer candidate: She could make a 25% down payment and offer above asking for a home in her price range.

But after 10 rejected offers this year, even including money for an appraisal gap, the St. Luke's physician assistant quit trying.

"The listing price felt like a suggestion," Johnson said. "I'd go in with what felt like a strong offer and someone would come swooping in with a cash offer. I had no ability to compete with that."

Johnson is among many in Duluth struggling to buy a first home or upgrade to a better one in the kind of bargain-less market that some real estate agents say they've never seen in the Twin Ports. Even as mortgage interest rates jump to the highest level in two decades, most homes continue to sell quickly and at the list price or more in certain ranges.

In a city with a limited supply of single-family homes, local residents compete with investors, Twin Cities buyers who discovered during the pandemic they can work from anywhere and employees in growing industries like health care. They also compete with West Coast residents escaping the perils of wildfires and water shortages to live by the world's largest freshwater lake. Duluth frequently is cited as a climate haven, a refuge as people flee the effects of global warming, coming for its outdoorsy, rugged beauty and relative lack of catastrophic weather and natural disasters.

And many of these buyers come with cash.

Between September 2021 and August, cash sales made up more than 20% of home purchases in the Duluth area, compared with 14.7% the summer before the start of the pandemic. According to the National Association of Realtors, Duluth ranked eighth in the nation for its annual increase of cash home sales in the first quarter of 2022.

In this market, some sellers won't accept a financed offer, said Jenna Galegher, past-president of the Lake Superior Area Realtors (LSAR).

Although the association doesn't track where buyers originate, "site unseen" offers, many from cash buyers, have been abundant in Duluth, she said.

But they're not all from out-of-towners. Some first-time buyers are borrowing money from older relatives, who turn home equity into cash, said Karen Pagel Guerndt, president of LSAR.

"Once they have the property they refinance it and pay off mom and dad," she said.

More expensive, no contingencies

Homes in Duluth are also selling for more money. The average sale price of a Duluth home has jumped 45% to $300,674 in the past five years. It's an increase similar to the Twin Cities, where the average price in September was $365,000, up 47.8% from five years ago.

And back then, homes sold in Duluth for about $3,000 less than list price. Now they sell for $9,000 more than the asking price, or about 3%.

The higher end of the market was more intense last spring, said Brok Hansmeyer, a Duluth real estate agent. He recalled two $500,000-range Island Lake homes both selling for $111,000 over asking. The city's lower-end market is now where buyers compete the most — the $100,000 to $300,000 range.

"People are living paycheck to paycheck," Hansmeyer said. "If you need a seller to pay closing costs, it's almost impossible."

This week, only 15 single-family homes in Duluth were listed for under $200,000.

That's the market with the most demand as higher interest rates force buyers to spend less. Many were shut out in the past couple of years and are still trying to buy, but they can't afford to forgo an inspection or pay thousands over the listed price.

Local buyers who need to sell a house also struggle, said Deanna Bennett, a real estate agent with Messina and Associates.

"You can't be contingent," she said. "You have to sell your house first, move in with family or find something to rent. That's where locals hurt the most."

Taylor Bjork got 23 offers on his Duluth Heights home listed at $169,900 last spring. It sold for $35,000 more and he was ecstatic, thinking his family of four would be able to buy its "forever home" with nearly $100,000 to put down.

"The timing couldn't have been worse," he said. "To give up a surefire security blanket — a roof for your kids — without a backup, was really stressful."

They arranged a short-term rent-back option with the new owners of their home and also lived with family before finding something in late summer that was suitable, ultimately paying $100,000 more than planned.

City leaders are working to increase housing stock on multiple fronts, including the creation of a Housing Trust Fund and the allocation of millions in American Rescue Plan Act money for affordable housing. Several apartment buildings across Duluth are planned or under construction, but the city lacks space for new single-family homes and condos.

One-level living for folks at retirement age and spec homes are in the highest demand, Bennett said.

'They think it's a bargain'

Even as winter approaches, real estate agents expect the market to remain competitive. They also expect more buyers from the West Coast and Colorado, choosing the region for its climate change resilience.

California desert resident and Wisconsin native Jeremy Christensen is one of those hopeful climate buyers, planning to finance a home in Duluth next summer.

"Compared to California, the market is insanely cheap," he said, for much nicer homes for the price. "But I know I am not alone in thinking about (the area as a climate haven). I have friends who know nothing about the Midwest who are looking for climate-safe properties along the Great Lakes."

Duluth real estate agent Casey Carbert said she she gets weekly calls from people living outside the area.

"They think it's a bargain — we have had multiple offers for properties on Lake Superior," Carbert said. "One million dollars to live on the lake? It's a good deal if you're from California."