Home prices made solid gains in May, according to a report released Tuesday, as home price growth appears to be largely flattening out after a long, uneven recovery.
The S&P/Case-Shiller Home Price Index, covering the entire nation, rose 4.4% in the 12 months ended in May, slightly greater than a 4.3% increase in April.
The 10-city and 20-city indexes saw similar increases in May as in April. The 10-city index gained 4.7% from a year earlier, slightly stronger than a 4.6% increase in April. The 20-city index gained 4.9% year-over-year, identical to the increase in April.
Economists surveyed by The Wall Street Journal expected a 5.7% increase to the 20-city index.
Price gains have remained largely flat in 2015 at just over 4%, after low double-digit gains in 2013. Economists said that is likely a good sign that the market is stabilizing closer to levels that most buyers can afford.
David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, said that price gains are likely to continue slowing, eventually stabilizing at around 3%.
Prices are increasing at about twice the rate of wages or inflation, keeping some home buyers out of the market. Housing starts and new home sales are well below normal levels, helping to create inventory shortages.
Sooner or later that is likely to have a cooling effect on the market, he said.
"Over the next two years or so, the rate of home price increases is more likely to slow than to accelerate," he said.
Month-over-month home price gains were modest, according to the report. Not seasonally adjusted, the U.S. Index rose 1.1% from April to May. The 10-city and 20-city indexes also both saw a 1.1% change over the month.
After seasonal adjustment, the national index was unchanged and the 10- and 20-city composites were both down 0.2% over the month. Ten of the 20 cities in the index reported month-over-month decreases in prices, after seasonal adjustment.
Monthly increases in prices have been slowing in 2015, pointing to a longer-term deceleration in home-price growth, economists said. "It's coming down out of the stratosphere to a more normal level," said Stan Humphries, chief economist at Zillow.
Denver, San Francisco, and Dallas remained among the strongest markets. Denver prices grew 10% year-over-year in June, while San Francisco prices rose 9.7% and Dallas prices rose 8.4%.
While the Case-Shiller appear relatively weak, a number of reports continue to point to rapid price gains. Last week, the National Association of Realtors reported that home prices vaulted to a record high in June, jumping 6.5% from a year earlier to $236,400.
Case-Shiller likely is showing more modest gains because of differences in how it tracks home-price growth. NAR's data look at all sales in the month and therefore may reflect that pricier homes were sold during that period. Case-Shiller looks at the same homes that have two or more recorded sales, tracking the data on a three-month rolling basis to ensure an adequate sample size.
Economists said last week they are concerned that home prices are rising out of step with incomes. That makes it particularly difficult for first-time home buyers to get into the market since they don't own homes that benefit from the rise in values.
"If you're a first-time home buyer and that real house-price appreciation is faster than wages are appreciating, then that makes it tougher to buy a house," said Doug Duncan, chief economist of mortgage-finance company Fannie Mae.
Continue Reading Below