Sellers are leaping back into the housing market.

Last month, new listings in the Twin Cities metro area increased 7.7 percent — the biggest increase in two years, according to a monthly sales report from the Minneapolis Area Association of Realtors.

"Word is getting out, and sellers are entering the market," said Kate Beckman, president of the St. Paul Area Association of Realtors and a vice president with Coldwell Banker Burnet.

Buyers haven't been shy, either. Last month there were 4,138 sales, a 5.3 percent increase from last year. The median price of those deals was $182,312, a 12.2 percent gain and a major boost for the thousands of homeowners who have been underwater on their mortgage.

Though the recovery is well into its second year, prospective sellers have remained timid. Some have been reluctant to list because the shortage of listings means they might not have a suitable option after they have sold their place, while others are holding tight, waiting for even higher prices in hopes of recapturing some of the equity lost during the recent downturn.

Whatever the case, listings haven't been keeping pace with sales. In April, there were 13,113 houses on the market, a nearly 30 percent decline from last year and the lowest in more than a decade.

That's causing a buying frenzy in some areas, with wall-to-wall open houses and bidding wars breaking out in some areas. Last month, sellers got an average of 95.9 percent of their original list price — a figure not seen since before the housing crash.

"There's definitely a lot of buzz again," said Joe Houghton, a sales agent with Re/Max Results who recently listed a house in south Minneapolis that triggered a bidding war.

"Everybody is talking about real estate," he said. "It's been a long time coming."

Houghton said that while inventory is tight, such situations aren't happening on every property.

"It's so absolutely critical to have your home staged well, and to have every last detail buttoned up," he said.

Home sales are improving across the country. On Thursday, the National Association of Realtors (NAR) said home prices in 150 U.S. metros, including the Twin Cities, saw their biggest year-over-year gains in over seven years during the first quarter of 2013.

The median price for an existing, single-family house nationwide was $176,600 during the first quarter, up 11.3 percent from last year. That was the biggest year-over year gain since late 2005. Prices were down in only 17 of those 150 metro areas tracked by NAR.

Improvements in the economy are having a dramatic effect on all facets of the housing market, especially construction of houses and rental apartments, said Herb Tousley, director of real estate programs at the University of St. Thomas. Minnesota's 5.5 percent unemployment rate is well below the national average, and the state has added 50,800 jobs in the last six months.

"Employment plays a major role in household formation," Tousley said. "As the number of people who are employed increases, more people will be moving into places of their own."

Houghton's clients, Nick and Katie Piehl, said that with three young children, including 4-month-old twins, they had been thinking about buying a bigger house on a metro-area lake. And though they bought their tidy stucco house at the peak of the market in 2005, price increases on houses in their neighborhood gave them the confidence to list without worrying that they'd lose a bundle.

Three days after listing the house for $250,000, they had 24 showings and three offers, including one for nearly $10,000 more than their asking price.

"It felt like a major relief," said Katie Piehl. "But that also made us realize how quickly we'd have to move on a house once we decided to more forward."

Their own house hunt has been far less successful than the sale of their place in south Minneapolis. Like many sellers who are trying to buy back into the market, the Piehls are not sure where they will move next. They have been outbid on one house, and haven't found any others that are worth an offer. If they can't find a suitable option by their closing, they will move in with Katie's parents.

"It was a huge weight off our shoulders to not have to sit with our house on the market for a month," she said. "We're a happy ending story to the housing market story."

Jim Buchta • 612-673-7376