* Home prices rose 1 percent in May, shy of expectations
* Consumer confidence index pulls back to 80.3 in July
* Homeownership at 17-1/2 year low in second quarter
By Leah Schnurr
NEW YORK, July 30 U.S. home prices rose in May,
suggesting the housing market recovery pushed ahead during the
spring buying season, though the pace of gains slowed in what
analysts said could be a sign of things to come.
Home prices gained 1 percent on a seasonally adjusted basis,
according to the S&P/Case Shiller composite index of 20
metropolitan areas. That was shy of economists' forecast for a
1.5 percent increase and marked a slower pace than April's 1.7
The report did not alter economists' views that the housing
sector's recovery is progressing, making it a bright spot for an
economy that likely saw growth slow sharply in the second
However, economists did flag the potential for higher
mortgage rates to dampen the speed of the rebound down the line.
"There is probably going to be a depressing effect from
higher mortgage rates, but it will not be enough downward
pressure to keep the housing market from expanding," said Celia
Chen, senior director of housing economics at Moody's Analytics
in West Chester, Pennsylvania.
Without seasonal adjustment, prices rose 2.4 percent in May
and on a national average they were back at their spring 2004
Analysts said a moderation in price gains was to be
expected, given the acceleration of home values. A tightening of
inventory available for sale, fewer foreclosures and buying from
investors have helped push prices higher over the past 1-1/2
years as the battered housing sector has gotten back on its
"It's not surprising. It's been rising so quickly," said
Home prices compared to last May also fell short of
expectations, though they still racked up a hefty 12.2 percent
surge, the biggest annual gain since March 2006.
Borrowing costs have risen in anticipation of the Federal
Reserve's plans to start winding down its economic stimulus
later this year if the economy progresses as expected.
Fed officials begin a two-day policy-setting meeting on
Tuesday, and investors will be watching Wednesday's statement at
the meeting's conclusion for clues on when the Fed's $85 billion
a month in bond purchases may start to slow.
Since early May, mortgage interest rates have climbed about
one percentage point. Data on Monday suggested the increase cut
into pending home sales, which dropped in June.
Still, rates remain low by historical standards and most
economists do not expect the higher costs to derail the housing
market. In the short-term, it could also spur potential buyers
to act before rates rise further.
May's home price data likely did not capture the rise in
rates as the contracts would have been signed before rates began
increasing, Bank of America-Merrill Lynch wrote last week.
Market reaction to the day's data was muted, with investors
focused on the Fed.
The ramifications of the housing market's far-reaching
collapse after prices peaked in 2006 are still visible, as
illustrated by separate data on Tuesday that showed the
homeownership rate fell to a 17-1/2 year low in the second
Home prices in all 20 cities covered by the Case Shiller
survey rose on a yearly basis in May, led by a 24.5 percent
surge in San Francisco. Two cities - Dallas and Denver - reached
record levels, surpassing their peaks reached during the housing
boom. It was the first time any city has racked up an all-time
high, the survey said.
The rise in mortgage rates and speculation over when the Fed
will unwind its stimulus may also have weighed on consumer
confidence this month, said Christopher Low, chief economist at
FTN Financial in New York.
Consumer confidence waned in July as Americans took a dimmer
view of the outlook for the economy and labor market, separate
data on Tuesday showed. Still, their view of current conditions
was more upbeat, rising to the highest level in five years.
The Conference Board said its index of consumer attitudes
slipped to 80.3 in July from an upwardly revised 82.1 in June.
The report was shy of economists' expectations for the index to
hold steady at June's original reading of 81.4.
The expectations index dropped to 84.7 from 91.1. Still,
consumers were not so gloomy about current conditions, with the
present situation index rising to 73.6 from 68.7, the highest
level since May 2008.