NEW YORK ( MainStreet) — Home price gains dropped again, signaling a return to normalcy in the real estate market.

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On Tuesday, the S&P/Case-Shiller Home Price Index, which measures home prices of 20 metropolitan cities, rose 1% in June and is up 8.1% since last June, compared to a 1.1% jump and a 9.3% year-over-year rise in May.

While the index is still 17% below its summer 2006 peak, it's also 28.5% above the lows of March 2012.

"The slowdown started last October and has been gradually coasting down and is likely to continue to do so," said David Blitzer, chairman of the index committee at S&P Dow Jones Indices. "I don't think 8% housing growth is sustainable when inflation is 2%."

He says home prices historically run a few percentage points higher than inflation .

Aside from prices, mortgage rates continue to fall. On Thursday, Freddie Mac said the average rate on a 30-year fixed mortgage fell to 4.10%, compared to 4.12% during the prior week and 4.58% from the same time last year. This coincides with the drop in the 10-year Treasury yield, the benchmark rate that determines rates on mortgages and other consumer loans, which currently yields 2.39%, after reaching 3% towards the end of last year.

Still, the Federal Reserve's tapering program is on track to end in October and the central bank has been grappling with when to raise short-term interest rates, which have remained near zero since December 2008.

"When the Fed starts raising rates, which is probably sometime next year, both the 10-year and mortgage rates will respond and move up," Blitzer adds. "When this happens, I think there will be an initial rush to buy a house or refinance, but I don't think higher rates will put a major damper on the market, unless it's a substantial and rapid increase."

As for lending, banks have loosened the credit spigots slightly, while still remaining prudent. According to the July Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve, which surveys 75 banks in the U.S. and 23 internationally, 50% of banks said credit standards on mortgages remained unchanged, while 17% said they "eased somewhat."

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Though softening sales has been encouraging buyers who were once sitting on the sidelines to enter the market and make offers. On Monday, the National Association of Realtors said sales of existing homes increased 2.4% in July to a seasonally adjusted annualized rate of 5.15 million, the highest level so far this year, compared to 5.03 million in June.

"The number of houses for sale is higher than a year ago, and tamer price increases are giving prospective buyers less hesitation about entering the market," said Lawrence Yun, chief economist with the National Association of Realtors. "More people are buying homes compared to earlier in the year and this trend should continue with interest rates remaining low and apartment rents on the rise."