Millennials and boomers will be big buyers
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
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
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.
West coast prices will continue to rise
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.
Mortgage rates will increase
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."
Read the rest of the predictions for the new year here.