For the past several years, rumors about rising mortgage rates triggered a sense of urgency for some buyers, but those increases largely hadn't materialized. However, as expected, last week the Federal Reserve raised interest rates for the first time in a year. Jonathan Smoke, chief economist for, expects the Fed to raise rates at least three times next year.

"Mortgage rates will likely move proportionately in anticipation of those increases, as clear data emerges about stronger economic growth and inflation," Smoke says. But there's still time for buyers sitting on the fence to close on a home before rates inch up further. "Rates will likely stay the same until about March, so buyers considering a purchase in 2017 may want to consider getting into the market now," he adds.

[Read: Looking to Buy a Home in 2017? Start Securing Your Finances Now.]

Here's a look at what real estate experts expect to see in 2017.

Rising interest rates may temper home prices. expects mortgage rates to hit 4.5 percent next year. This is still low relative to historical mortgage rates, but it may slow rising home prices, because "as you reach higher prices and higher mortgage rates, you diminish the pool of people who can buy," Smoke says.

When buyers set their monthly housing budget, they need to account for higher rates, which means they may not be able or want to borrow as much money as they could at the previously lower rate. expects home price appreciation nationally to decelerate from an estimated 4.9 percent in 2016 to 3.9 percent in 2017.

But Nela Richardson, chief economist at national real estate brokerage Redfin, doesn't think rising rates will scare off all homebuyers. "When we look at demand, it makes us feel confident that demand will continue to be strong even as rates go up," she says. Already expensive markets such as San Francisco and New York City could be the most affected by rising rates.

Older millennials will continue driving housing demand. For the past three years, millennials have been the largest group of homebuyers, and that trend is likely to continue in 2017, as many older millennials grow their incomes and seek starter homes to put down roots or raise a family. According to the 2016 National Association of Realtors Home Buyer and Seller Generational Trends study, millennials (defined in this study as those under age 35) composed 35 percent of all buyers, up from 32 percent in 2014.

As a growing number of millennials enter the real estate market, their preferences for searching listings and communicating with agents are also shifting the homebuying process. "When millennials shop for homes, almost 90 percent of them do their research online," says Dr. Svenja Gudell, chief economist at real estate marketplace "Also noteworthy is that many of them are on a dual track to consider rentals. People need to be able to dual track it, because oftentimes they don't find a house in time." Svenja adds.

While in past years millennials and older Gen Xers tended to buy with down payment help from parents, Richardson says that's changing thanks to low down payment options. "In cities like D.C., we're seeing older millennials – high earners with low down payments – who are buying in the $500,000 to $800,000 range," she says.

[See: 10 Ways Millennials Are Changing Homebuying.]

Millennials buying in second-tier and Midwestern cities. Housing prices in desirable coastal cities such as San Francisco have skyrocketed in recent years. As a result, expects greater interest from millennial buyers in more affordable Midwestern markets including Madison, Wisconsin, Columbus, Ohio, and Omaha, Nebraska. In many cases, millennials are already living in those cities and find the lower cost of living makes saving up a down payment more attainable. According to Smoke, the average down payment in many parts of the Midwest is less than 10 percent. With the median home price in Columbus at $123,600 and $147,600 in Omaha, according to Zillow, that means buyers in many Midwestern markets can get into a home for less than $20,000 down.

Richardson says millennials are seeking less expensive, second-tier cities such as Raleigh, North Carolina, and North Port, Florida, where they can afford the high-end fixtures they want. "They're demanding a lot for their home," she says. "The number one thing these folks want from their homes is top-notch [interior design] features. That ranks above school choice, commuting and some other things that you think would be important."

Older boomers will also drive demand. Baby boomers are another key demographic that is expected to drive housing demand next year, particularly older boomers whose housing needs change as they enter retirement. Like millennials who rented longer than previous generations due to student loan debt or other economic factors, many boomers have stayed in their current homes longer as they waited for home prices to recover. "A good indication of pent-up demand correlates with what we see in Census data," Smoke says. "The two [generations] really diverge but the common theme is life differences," he adds. predicts boomers will make up 30 percent of buyers in 2017. Because many boomers have built up equity in their homes, these buyers don't have to wait for mortgage underwriting or factor mortgage rates into their budgets. In fact, the Center for Retirement Research at Boston College estimates that those over age 65 have an average of $150,000 in home equity, according to 2010 data.

[See: The 20 Best Affordable Places to Live in the U.S. ]

Of course, with a new White House administration comes ambiguity over what economic and immigration policies might be introduced and how they might impact housing. "Next year is going to be a little uncertain," Richardson says. "I expect that next year might be a bit bumpy as all of these changes come into full view and there are more details."

Tags: personal finance, renting, housing, real estate, money, home prices, interest rates, Federal Reserve

Susan Johnston Taylor has contributed to the money section of since 2011, covering everything from personal finance apps and spending strategies to mortgages, insurance and estate planning. Her articles on business and personal finance have also appeared in or on The Atlantic, The Boston Globe, Learnvest, Entrepreneur and Fast Company. Susan's goal is to offer readers new insights and practical ways to save money, advance their careers or improve their lives. You can find her on Twitter @UrbanMuseWriter.

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