Home Prices Continued to Rise in July but at a Slower Rate (Update 1)

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Updated from 9:22 a.m. EDT with additional details and commentary.

NEW YORK ( TheStreet) -- Home prices continued to rise in July, though the pace of monthly gains are slowing as buyers feel the impact of rising interest rates.

The S&P/Case-Shiller 20-City Composite Index and 10-City Composite Index rose 1.8% and 1.9%, respectively, from June. On a seasonally adjusted basis, the indices rose by only 0.6% and 0.7%, respectively.

Economists polled by Bloomberg expected the 20-City index to rise 2% from June or 0.8% on a seasonally adjusted basis.

Year over year, the 20-City composite rose 12.4%, which is still a very strong rate.

The Case-Shiller Index is based on July closings and on a three-month moving average. So the price trends capture activity dating back to May, when interest rates were just beginning to rise.

All the 20 cities that make up the widely followed index have seen monthly gains for four months in a row. Still, the pace of gains is decelerating. For instance, the 20-City Index rose by a higher rate of 2.2% or 0.9% seasonally adjusted in June.

"Home prices gains are holding their 12% annual rate of gain established by the two composite indices in April," said David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. But he said that the slowing pace of monthly gains suggest that "the rate of increase may have peaked."

"Home prices in July continued to be buoyed by spring market conditions: strong pent-up demand, historically low mortgage rates, and limited inventory. These price gains are unlikely to last," Ellen Haberle, economist at national real estate brokerage Redfin, said. "We expect that higher mortgage rates, growing inventory levels, and seasonal relaxations of home demand will begin to moderate home price growth in the autumn months."

As of July 2013, average home prices across the United States are back to their spring 2004 levels. Measured from their June/July 2006 peaks, the peak-to-current decline for both composites is approximately 21% to 22%. The recovery from the March 2012 lows is 20.5% and 21.2% for the 10-City and 20-City composites.

The Southwest is leading the recovery, with Las Vegas home prices up 27.5% year over year. Prices in the California cities of San Francisco, Los Angeles and San Diego are up 24.8%, 20.8% and 20.4%, respectively.

Some of these gains are exaggerated, because the share of foreclosures and short sales have declined since last year. Distressed properties typically sell at deep discounts to market prices.

Robert Shiller, the Yale University economics professor who helped create the S&P Case-Shiller Index, said the pricing data has been mixed. Some states continue to see prices skyrocket, which Shiller said makes him worry about a bubble in those areas.