Increasing mortgage rates and their impact on affordability will be the most significant force driving the 2017 housing market, according to the latest Zillow Home Price Expectations Survey.

The quarterly survey, sponsored by Zillow and conducted by Pulsenomics LLC, asked more than 100 housing experts and economists what factors would have the greatest impact on U.S. housing this year. The most frequent answer was rising mortgage rates and their impact on mortgage affordability, with more than half of panelists selecting it.

The survey respondents ranked low inventory and shifting demographics, as millennials age into their prime home-buying years and the housing needs of aging Baby Boomers change, as the next most important factors for the 2017 housing market.

Buyers and homeowners have been able to take advantage of historically low mortgage rates on purchase or refinance loans for the past several years, but rates jumped following the presidential election in November, and have since hovered around 4 percent. In December, the Federal Reserve voted to raise the federal funds rate – which can influence mortgage rates – by 25 basis points for the second time in the last decade and set expectations for the possibility of a more aggressive rate hike cycle throughout 2017. Similarly, home price appreciation accelerated at the end of the year, and income growth is not keeping pace.

With both mortgage rates and home values rising, paying for a home with a mortgage becomes more expensive and requires a larger percentage of income each month. But since mortgage rates have been at historical lows for several years, and recent increases have been relatively small, they have not yet had significant effects on home value appreciation. For buyers of the median U.S. home, valued at $193,800, an increase from 4 percent to 4.25 percent would only increase their monthly mortgage payments by $23.

As rates rise, though, monthly payments for homes will increase, and buyers' budgets will be more strained. Since 77 percent of buyers use a mortgage to finance their purchase, this will affect the majority of buyers, and the market will not be able to sustain the more rapid home value appreciation we have seen in the past few years. Most experts believe there won't be a significant slowdown in appreciation until rates reach 5.5 percent, which isn't likely to happen this year. Zillow expects the conventional 30-year fixed mortgage rate to be closer to 4.75 percent by the end of 2017.

"Rising mortgage rates, inventory shortages and demographic shifts will be the main drivers of the U.S. housing economy this year, especially for first-time buyers who will face tougher competition for entry-level homes and often operate with a tighter budget than move-up buyers," said Zillow Chief Economist Dr. Svenja Gudell. "When you combine higher mortgage rates with increasing home values, mortgage affordability starts to suffer, and buyers will have to spend more and more on their monthly payments. This makes it even more important for buyers to prepare their finances, and shop around to make sure they are getting the best possible rate."

Another potential effect of rising mortgage rates is their influence on current homeowners, who may decide not to sell their homes to avoid needing a new mortgage at a higher rate, leading to more constrained inventory. More than half of the respondents (56 percent) in this survey said this "mortgage rate lock-in" is already or will have a meaningful impact on the housing market.

Home values rose 6.8 percent in 2016. Overall, the experts surveyed predict home prices will rise 4.6 percent in 2017, then slow to 3 percent annual growth by 2019.

"Compared to their outlook in our previous survey just a few months ago, most of our panelists now expect somewhat stronger home value appreciation this year and next, as tight inventory conditions persist," said Pulsenomics founder Terry Loebs. "However, longer-term, the consensus still calls for decelerating prices, with the most pessimistic of experts continuing to project negative inflation-adjusted returns for U.S. housing beyond 2017. The specter of rising mortgage rates and other affordability hurdles are clearly impacting these home value projections."