Tempstar 2 stage furnace restarting every 7 minutes – not going into high

100%. Won't happen with most systems (some inverter-drive heat pumps may come close), but the optimal situation would be for the heat delivery to exactly match the load, so the furnace ran all the time, and there were no standby losses.

The furnace your contractor has chosen seems like a reasonable choice IF the heat loss calculations are accurate.

As to why this is the case, one is the standby (non-operating time losses) such as heat going up the flue of a gas furnace (much less so with power-vented furnaces without a "stack") and the other is a comfort issue, best envisioned where you have a vastly oversized system that might run 5% of the time - so 5% of the time it's blowing uncomfortably hot air, and 95% of the time the house is cooling and areas near outside walls may get uncomfortably cold. With a less-oversized system that runs more of the time, heat is delivered more gently and more of the time.

Low ambient mini-split heat pump is a typical approach - might want a couple-three (the 9-12K BTU/hr ones tend to be more efficient than the bigger ones, and the "1-compressor - 1 inside unit" also tend to be more efficient than the "1 compressor - multiple inside unit" versions, though the initial cost will be more.

An alternate approach for just heat, and using your ducts as is, would be to replace your furnace with a "fan coil unit" (water to air heat exchanger with a blower fan) and connect that to a highly efficient gas water heater. A circulating pump would also be required, and perhaps a heat exchanger to isolate the systems (or find a coil unit that is safe for potable water contact and use a stainless steel pump.)

On the third hand, a natural gas parlor heater (fake wood stove) in that size range could provide the heat, (or a pellet stove if you wanted to change fuel sources, but at the current time gas is probably the most economical heating fuel if you have it) and then you might still want some sort of fan on the ducts to help even out the temperatures around the house. These are available with controls that do not require outside electric power to operate, and can be quite an attractive focal point.

Ground source heat pumps are a lovely idea that suffer from often being not economically viable - A minimal GSHP setup is typically 5-10X the cost of low-ambient air-air units, though they are far more resilient in deep cold since they operate from deep groundwater temperatures that are usually stable at 52F or so.