Meanwhile, the number of new-home sales rose to a 504,000 annual rate in May, far above the 439,000 analysts had expected, a positive sign for housing. And the Conference Board's consumer confidence index rose to 85.2, from 82.2 in May.
Analysts have worried that the rapid rise of home prices — which have climbed much faster than incomes in most metropolitan areas — might lead to new excesses in the housing market. Jed Kolko, the chief economist of Trulia, estimates that national home prices are only 3 percent undervalued relative to long-term fundamentals, and that a handful of locations, particularly in Southern California, are now significantly overvalued.
That being the case, moderation in the rate of home price gains could be good news, in the sense that buyers are less likely than they were a decade ago to stretch to buy a home at any price.
"Although it may seem counterintuitive, this is actually welcome news, because it means that we're not looking at a bubble," Patrick Newport and Stephanie Karol of IHS Global Insight, wrote in a report. "A smaller yearly increase over a higher base is a healthy sign for the housing market: Homeowners continue to build equity, but home purchases remain within the realm of possibility for buyers."
Current home price levels are far from the clear bubble levels of 2006. Kolko, for example, finds that the frothiest market in the U.S. is Orange County, California, which by his measures is 17 percent overvalued relative to fundamentals like rents and incomes. In early 2006 it was 71 percent overvalued.
That said, those moderate potential overvaluations could easily become major ones if double-digit price increases rise too much longer. In a world where inflation is low and wages are flat, continued steep home prices increases would rapidly move the housing market from broadly balanced to unaffordable and primed for a correction in just a few months.
That is what makes this housing recovery seem healthier and more sustainable than the bubble of the early 2000s. Then, even as home prices soared beyond any traditional level relative to income, home buyers responded by taking on more risk and buying anyway, speculating on further home price gains. And they were encouraged to do so by profit-mad lenders who threw caution to the wind in the belief that housing prices could never collapse.
This time, mortgage lenders are exercising much more restraint and home buyers seem to be looking at high valuations and not getting caught up in the excitement, instead drawing the line and paying no more than they can afford.
Home price numbers tend to move in steadier, more gradual waves than other economic data. They also come out with long delays; the April Case-Shiller numbers are actually based on transactions that closed from February through April - and those home sales generally went under contract a month or two before they closed.
So the latest home price readings are very much a look in the rearview mirror, and it is a look that suggests a deceleration is underway. The question is where it will ultimately settle. If prices were rising 13 percent in the year ended in November and 11 percent in April, what will, or should, the level be later in 2014?
The healthiest thing for the housing market would be home price rises that thread the needle: high enough that homeowners are building equity and homebuilders have incentive to start new construction, but low enough that they don't significantly outpace wage growth and result in unaffordable housing and a painful correction.
Gus Faucher, a senior economist at PNC Financial Services Group, forecasts exactly that, predicting low-to-mid single digit home price appreciation through the rest of 2014 and into next year. "This is roughly equal to income growth, and thus is sustainable over the longer run," he wrote in a report Tuesday.
In April, the price rises were strongest in the West, with San Francisco home prices rising 18.2 percent over the past year, according to the Case-Shiller index, and Las Vegas prices up 18.8 percent. The weakest price rise among 20 major metro areas was in Cleveland, with only a 2.7 percent increase.