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9 real estate trends to expect in 2017

Latest MoneyWatch headlines 01:11

Thinking about buying or selling a home next year?

No matter what your real estate goals, it's good to learn everything you can in order to make the best deal.

We asked Svenja Gudell, chief economist for Zillow, and Jonathan Smoke, chief economist for, what we can expect to see in the market next year.

While predicting how the real estate market will behave is never an exact science, this year could be especially difficult to predict, the experts said.

"I think at this point it will be a very interesting year as we see what President Trump will put into place as far as housing policies," Gudell said. He cited possible changes to affordable housing regulations, vouchers and how the Federal Housing Authority works during the Trump administration.

While some presidential policies are tough to foresee at this early stage, plenty of market trends for the new year are much clearer.

Click ahead for nine predictions about the real estate market in 2017.

Millennials and boomers will be big buyers

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As the oldest of the millennials push into their mid-30s, many will start to settle down and buy houses, Smoke and Gudell said.

A number of factors are contributing to this generation's decision to start buying homes. More jobs are being created for 25- to 34-year-olds than any other age group, and wages are rising, Smoke said. Millennials are also reaching an age at which they're thinking about marriage and children.

Baby boomers, the oldest of whom are entering their late 60s, are also looking to move as they reach their retirement years, Smoke said.

In the last several years, baby boomers' participation in the housing market has dwindled. Many already own homes and may have been reluctant to sell until their properties recovered the value they lost in the housing bust, Smoke said.

"While a sizable number want to downsize to control expenses, we're seeing others move to the biggest house they've ever owned because they've got children and grandchildren and they want those people to come visit," Smoke said.

He added that many boomers are opting not to move to traditional retirement hot spots like Arizona and Florida, instead choosing to move closer to family.

Home values will increase, but more slowly than last year

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Home values should increase about 3.6 percent next year, Gudell said. That's a slight drop from 2016, when national home values rose about 4.8 percent.

As the market recovered from the housing crisis, "for a while, we were growing at very high home-value appreciation rates," Gudell said. "What we'll see for next year are more historically normal appreciation rates in line with what we've seen over the last 50 or so years."

Gudell and Smoke said this slowdown in appreciation is an inevitable effect of the market's recovery, and it signals that the nation's housing market is normalizing.

More people will move to the suburbs for affordable housing

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As home prices continue to rise, more buyers will move to the suburbs to find affordable housing, Gudell said.

"After the housing bust, people were able to move back to the cities because it was much cheaper than a few years ago," she said. "Now, we see people would still like to live close to the city center where they're close to amenities and in walkable neighborhoods, but for the first time they're not able to find enough inventory that's affordable for them to buy."

As a result, many people have to look further out from cities to find homes in the right price range.

New homes will be even more expensive

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New construction always comes at a premium, but that will be even more true in 2017, Gudell said.

A labor shortage in the construction industry is forcing builders to offer higher wages to compete for workers. Those costs, Gudell said, will be passed on to buyers.

In addition, President-elect Donald Trump's promises to deport immigrants -- who often find work in the construction industry -- could exacerbate the existing labor shortage.

"It's tough to give an exact point of impact [for Trump's policies] because we have so few details about some of these plans," Gudell said.

Millennials will flock to Midwestern cities

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While many young people have traditionally headed for the coasts after college, an increasing number of millennials are choosing to settle down and buy homes in the Midwest, Smoke said.

In particular, predicts millennials will settle in Madison, Wisconsin; Columbus, Ohio; Omaha, Nebraska; Des Moines, Iowa; and Minneapolis, Minnesota, Smoke said.

"I don't think it's so much about millennials moving to those cities. It's more about millennials deciding to stay and deciding that this is where they want to buy a home," Smoke said.

These markets are close to large universities, offer well-paying jobs and are generally more affordable for young homebuyers, he said.

West coast prices will continue to rise

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Homebuyers may have the market on their side in the Midwest, but home prices on the already-expensive West Coast will continue to rise, Smoke said.

"It's fundamentally where the most significant job growth has been since the end of the recession, led by California -- particularly Northern California -- and continuing into Portland, Seattle, Denver, Phoenix and Tucson. Most Western markets are outperforming the East," Smoke said.

Population growth will follow job growth, he said, increasing demand for homes beyond the market's ability to build inventory and lead to higher prices.

Cities will see dense development with smaller homes near public transit

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During 2016, Zillow held a number of Housing Roadmap events to meet with officials in cities across the country and learn about the challenges and housing visions unique to each city, Gudell said.

"The number one issue many mayors and cities face is affordability," she said. "A lot of them are addressing this by building smaller homes -- which take up less space so they can build more of them -- and by developing public transit so people can move away from the city center and still have access to it."

Rental affordability will improve

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Renters rejoice: Experts predict renting will become more affordable next year.

"Incomes are growing faster [than rent prices] for the first time in quite some time," Gudell said.

Zillow predicts rental rates will rise only about 1.5 percent in 2017, Gudell said. This is due in part to an increased supply: A lot more multifamily rental units are being built, and many renters have doubled up with roommates. These two things have helped supply rise to meet rental demand.

Mortgage rates will increase

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Following the housing market crash, mortgage rates remained at record lows for years. However, that's finally starting to change, Smoke said.

Rates are climbing now and are expected to keep doing so next year, with the Federal Reserve indicating that three more increases to its benchmark rate are coming in 2017.

"As a buyer or seller, this essentially points to acting sooner rather than later if you're intending to do a transaction next year," he said. "Rates will get higher as we go through the year, and inventory is not going to improve. So winter or early spring will be more advantageous than waiting for late spring or early summer, when most buyers emerge."

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