As the housing market's economic recovery enters a new stage in2017, the homeownership rate will bounce back from historical lowsand renting will become more affordable, according to a reportreleased Tuesday by Zillow.

Millennials will play a significant role in increasing thehomeownership rate, but President-elect Donald Trump's policies couldmake their purchase more expensive.

“There are pros and cons to both existing homes and newconstruction, and the choice for home buyers can often bedifficult,” Zillow's chief economist Svenja Gudell said in astatement.

Here's what Zillow sees ahead for the housing marketin 2017:

1. City planners will focus on denser development, with smallerhomes close to public transportation and urban centers.

2. More millennials will buy homes, driving up the homeownershiprate. In 2016, about half of all buyers entered the market for thefirst time, and millennials comprised more than half of thisgroup.

And because millennials are also more racially diverse thanother age segments, more homeowners will be people of color,reflecting the U.S.'s changing demographics.

3. New home buyers will have to spend more as builders cover thecost of rising construction wages. These will rise even more in2017 because of continued labor shortages, and “could get worse ifPresident-elect Trump follows through on his hard-line stances onimmigration and immigrant labor,” Gudell said.

“A shortage of construction workers as a result may forcebuilders to pay higher wages, costs which are likely to get passedon to buyers in the form of higher new home prices.”

4. Rents in 2017 will be more affordable than they have been forthe past two years as incomes rise and growth in rents slows.Zillow reported in September that rents in the country's 35 largestmetro areas were appreciating at a 1.7% rate, compared with rentappreciation of more than 6% a year earlier.

5. The percentage of people who drive to work will rise for thefirst time in a decade as homeowners move deeper into the suburbsin search of affordable housing—and farther away from adequatepublic transit options.

6. Home values will grow by 3.6% in 2017, according to more than100 economic and housing experts recently surveyed by Zillow.National home values have risen by 4.8% so far in 2016.