If you’ve been paying attention to the real estate market lately, you’ve probably seen the headlines: high mortgage rates, predictions that home prices would fall, and talk of a market crash. But here’s the reality—those real estate market predictions missed the mark.

The truth is, the market’s not behaving the way most people expected. And if you’ve followed my blog for awhile, this will likely come as no surprise. Because no one has a functioning crystal ball. And if you are going to invest in real estate, or otherwise, your plan should not rely on one.

But what about those physicians just looking to buy a primary home. Well, if you’re planning to buy a home in 2025, you need to understand what’s really going on with the economy, housing supply, and demand.

Thankfully, there are some trends working in our favor going into 2025. But, as well just discussed, no crystal ball is clear.

So, my friend Colin Jenson at NEO Home Loans and I took a look at how real estate market predictions fared in 2024 and, for fun, make some predictions for 2025. (Then, we can talk about what to do with those predictions!)

Evaluating the big real estate market predictions from 2024

In 2024, a lot of people thought home prices would drop.

After all, mortgage rates were sitting between 7% and 8%—historically, rates like these should have made prices go down. But instead, home prices rose by 5.9%. Why? Because demand for homes stayed strong, even with higher mortgage rates.

Specifically, millennials and Gen Z are major driving forces behind these motivations. These younger generations—millennials are now in their late 30s—are just getting to the point where they can afford homes. And they’re doing so in large numbers. As these groups have aged into their homebuying years, they’ve just continued to push demand higher.

We’ve also seen birth rates rise steadily since the 1980s. This means more people—and more demand—will continue to flood the housing market over the next decade. This demographic shift isn’t just a short-term blip; it’s a long-term trend that seems here to stay.

Keep in mind, real estate is also hyper-local. National trends only tell part of the story. While some markets saw home prices drop, others, like Chicago, saw prices rise. The key takeaway here is that what’s happening in your local market is what matters most.

Making some predictions for the real estate market in 2025

**Rubbing our non-functioning crystal ball**

Lower rates in 2025?

Mortgage rates have been a huge roadblock for homebuyers over the last year. When rates are high, it’s harder to afford a home. And when fewer people can afford a home, demand drops. It’s simple math: higher rates = less affordability.

But here’s where things get interesting. If mortgage rates start to come down in 2025, demand will surge. Why? Because when rates drop, more people can afford to buy homes. More buyers = higher prices.

Historically, when rates fall, homebuyer demand increases. Millennials are the driving force behind this. This generation is now hitting their homebuying years in big numbers. As rates decrease, expect to see more buyers flooding into the market.

What will make mortgage rates drop? The answer lies in economic data. Reports on inflation, employment, and wage growth will influence the Federal Reserve’s decisions and affect the bond markets that mortgage rates are tied to.

Here’s what that means for you: If inflation slows and unemployment rises, we could see rates come down, possibly even to the 5.85% range. That would make homes more affordable for more people—and prices will likely continue to rise.

Will more homes come on the market?

The short answer: Not anytime soon. The housing market is still tight. There’s a huge shortage of homes for sale, and that’s not expected to change in the near future.

Why? The biggest issue is lack of new construction. Right now, we’re only building about 1.4 million new homes per year, but we need about 1.7 million new homes to keep up with the growing demand.

Also, many homeowners are staying put because they’re locked into low mortgage rates. Roughly 80% of homeowners have mortgages with rates under 5%, and they’re not eager to give up those low rates by selling. This is what we call the “lock-in effect.” It means fewer homes are coming to market, which makes the supply shortage worse.

But here’s the silver lining: As younger generations—millennials and Gen Z—move into the homebuying market, the demand for homes will continue to increase, and that should drive prices up.

Where will home prices go in 2025?

Home prices are expected to rise again in 2025.

Most analysts are predicting price increases between 0.3% and 4.4%, but I believe prices will continue to appreciate at around 5%, just like we’ve seen in recent years.

Why? Because real estate has been a reliable wealth-building tool for decades. Over the long term, home prices rise—even during tough economic times. When you buy a home, you’re buying an asset that will continue to grow in value.

So, what does this mean for potential physician home buyers?

Because that is what actually matters, right?

Well, let’s talk first in theory

Based on this data, buying a home in 2025 could make sense. Lower rates compared to recent with prices holding largely steady with potential for future appreciation all bodes on the positive side.

But, there are challenges ahead—high mortgage rates, limited inventory, and rising demand.

Now let’s talk in reality

In the end, rates can go up or down. Homes can appreciate or not. All that matters for you, the homebuyer, is if the property you buy makes sense for you (and your family) in practical terms as your home and fits in your financial plan.

Remember, your primary home is a liability – it takes money out of your pocket. Yes, it may appreciate and technically build your wealth. But you shouldn’t rely on that.

Related Post: 5 Reasons Your Primary Home is Not an Asset…And 1 Reason It Is

So, practical and financial consideration predominate.

My recommendations, discussed in detail here, are to figure out via a budget how much you can reliably spend monthly on a mortgage for your primary home. Then, set criteria for what you are looking for in a home – how many bedrooms, location, etc. Lastly, search for a home that first all of your criteria, including the financial ones. Once you find it, get it!

Then, no matter what the market does, whether your predicted it correctly or not, you are happy and financially secure in your home!

If buying a primary home may be in your plans, you can click here to learn more about the physician loan programs available at NEO Home Loans.

And if you are looking for resources to help you invest in real estate like me and Selenid, check out these posts!

• Real Estate Investing: Why the Tortoise Beats the Hare
• How to Screen & Analyze Investment Properties the Right Way
• 5 Important Questions to Ask Your Investor Real Estate Agent

What do you think? What real estate market predictions do you have for 2025? Is your crystal ball working? What practical advise do you have for those buying a home? Let me know in the comments below!