Dive Brief:

• The widening affordability gap in the wake of rising mortgage rates is set to be the overriding factor in the U.S. housing market this year, followed by low inventory levels and the evolving housing needs of baby boomers, according to Zillow's quarterly Home Price Expectations Survey, which polled 100 housing market experts.

• The impact of rising mortgage rates is minimal so far, Zillow noted, with an increase from 4% to 4.25% upping the monthly mortgage payment on a median U.S. home, which is valued at $193,800, by $23 per month.

•  A significant slowdown in housing activity related to mortgage rates is not likely until those rates reach 5.5%, according to the survey. The conventional 30-year fixed mortgage rate is expected to be around 4.75% by the end of this year.

Dive Insight:

The increase in mortgage rates following the U.S. presidential election has invited plenty of speculation and analysis among industry observers as to its impact on homebuying activity and affordability, particularly among young, first-time buyers.

Home-listing website Trulia recently noted a disparity in the number of user searches for entry-level homes on its platform and the number of available properties in that category. The company found that the entry-level sector accounted for 27% of online home searches in the fourth quarter and just 21% of listings.

Inventory is needed to meet this specific demand while also helping to reduce price pressure throughout the market. The National Association of Realtors reported that the median price of an existing single-family home rose in nine of 10 markets (89%) during the fourth quarter of 2016, while market inventory hit 3.9 months of supply compared to 4.6 months a year earlier.

Meanwhile, new construction has been on the rise but has failed to take off considerably. Single-family starts dipped 4% from November to December to an annual rate of 795,000 despite being up 3.9% year-over-year. Overall, housing starts were up 11.3% from November to December and 5.7% for the year at a rate of 1.226 million. The Commerce Department will release its starts figures for January on Feb. 16, offering more insight into future new construction inventory conditions.

Builders are optimistic, however, that pent-up demand, particularly at the lower-priced end of the market, will fuel business growth if they can adjust their models to meet the needs of cost-sensitive first-time buyers.

For more housing news, sign up for our daily residential construction newsletter.