Residential real-estate prices increased in June at a slower pace, a sign that the pace of improvement in the housing market is cooling.
The S&P/Case-Shiller index of property values in 20 cities rose 12.1% in June from the same month in 2012 after rising 12.2% in the year ended in May, which was the biggest gain since March 2006, the group said today in New York. The increase matched the median forecast of 25 economists in a Bloomberg survey.
Increasing property values are boosting household wealth, helping underpin consumer spending, which accounts for about 70% of the economy. At the same time, a jump in mortgage rates shows signs of curbing sales and refinancing, which will make it more difficult to tap home equity.
The “rate of growth of home prices is certainly slowing, but we’re still posting respectable year-over-year increases,” said Brian Jones, a senior U.S. economist at Societe Generale in New York and the top-ranked forecaster for the home-price index over the past two years, according to data compiled by Bloomberg. “Housing’s in good shape. We’re always going to keep one eye on mortgage rates to see if there is an appreciable impact going forward.”
Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in September dropped 1% to 1,638 at 9:21 a.m. in New York as tension grew over possible military action in Syria.
Estimates in the Bloomberg survey for the year-over-year price gain ranged from increases of 10.7% to 12.6%. The Case-Shiller index is based on a three-month average, which means the June figure was also influenced by transactions in May and April.
Today’s report also included quarterly figures for the market nationally. Prices covering all of the U.S. climbed 10.1% in the second quarter from the same period in 2012, matching the year-over-year gain in the quarter ended March.
Home prices adjusted for seasonal variations rose 0.9% in June from the prior month after climbing 1% in May. San Diego and Las Vegas showed the biggest adjusted monthly increase, with prices rising 2.2%. Home prices declined in five cities, with Detroit showing the biggest loss at 1.4%.
Unadjusted prices climbed 2.2% from May as all 20 cities advanced.
The year-over-year gauge provides better indications of trends in prices, according to the S&P/Case-Shiller group. The panel includes Karl Case and Robert Shiller, the economists who created the index.
All 20 cities in the index showed a year-over-year increase, paced by gains of 24.9% in Las Vegas and 24.5% in San Francisco. New York showed the smallest increase at 3.3%.
Recent data signal rising mortgage rates may prompt buyers to hold back on future purchases as the Federal Reserve attempts to wean the economy from monetary stimulus without compromising growth. The average rate on a 30-year, fixed-rate purchase loan was 4.58% in the week ended Aug. 22, the highest in two years, according to McLean, Virginia-based Freddie Mac. The 30- year rate reached a record-low 3.31% in November.
“Housing prices are rising but the pace may be slowing,” David Blitzer, chairman of the S&P index committee, said in a statement. “With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened.”
Sales of new U.S. homes plunged 13.4% in July, the most in more than three years, to a 394,000 annualized pace, Commerce Department figures showed last week. The median price of a new home increased 8.3% last month from a year ago to $257,200.
Purchases of previously owned homes climbed a more than forecast 6.5% to a 5.39 million annualized rate last month, according to Aug. 21 figures from the National Association of Realtors, as buyers rushed to lock in mortgage rates before they rose any more.
Gains in employment will probably sustain demand, supporting builder confidence that reached the the highest level since November 2005 this month, said David Crowe, chief economist at the National Association of Home Builder in Washington. At the same time, inventories remain tight, exerting upward pressure on home values.
“Builders are convinced stability has returned,” Crowe said. “The underlying demand will continue to increase because the economy will expand. That will overwhelm any interest rate impact.”
Expansion in housing has burnished the outlook for home- improvement retailers such as Mooresville, North Carolina-based Lowe’s Cos., which posted profit that topped analysts’ estimates in the quarter ended Aug. 2 and raised its forecast for the year as the recovery encourages spending on remodeling.
“As home prices started to move up, I think it does have homeowners feeling gradually better about willingness to spend, particularly as you get to big-ticket durables,” Chief Executive Officer Robert Niblock said on an Aug. 21 conference call. Still, “the wildcard is interest rates and the impact that has on housing affordability, so we’re kind of watchful of that potential impact.”