US house prices rose at a less feverish pace in July signalling the impact of higher mortgage interest rates on demand.

The Standard & Poor’s/Case-Shiller index, which tracks property values in 20 metropolitan regions across the US, rose 0.6 per cent on a seasonally adjusted basis, compared with economists’ forecasts for a 0.8 per cent gain. Prices rose 0.9 per cent in June.

Even so, prices were 12.4 per cent higher than the same month in 2012, the biggest year-to-year advance since February 2006. In June, prices advanced by 12.1 per cent from the year before.

Even as the housing rebound remains under way, industry watchers say rising mortgage interest rates are beginning to put pressure on sales.

“More cities are experiencing slow gains each month than the previous month, suggesting that the rate of increase may have peaked,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

“Following the increase in mortgage rates beginning last May, applications for mortgages have dropped, suggesting that rising interest rates are affecting housing,” he added.

While the Federal Reserve’s decision last week not to scale back its economic stimulus package may have a favourable impact on housing – by keeping steep rate rises at bay and encouraging homebuyers to move ahead with purchases – economists say it will be limited.

The rate on a 30-year home loan averaged 4.5 per cent in the week ended September 19, near its highest level since July 2011, according to Freddie Mac data. The rate, which was as low as 3.81 per cent at the end of May, began rising after chairman Ben Bernanke indicated the central bank may slow asset purchases.

All 20 cities in the Case-Shiller index showed year-on-year gains, led by a 27.5 per cent surge in Las Vegas. San Francisco, Los Angeles and San Diego also showed gains in excess of 20 per cent.

Mr Blitzer’s comments echo those of Lawrence Yun, chief economist at the National Association of Realtors, who said last week the US may be witnessing the “last hurrah” as the jump in borrowing costs amid high prices hurts affordability and ultimately sales.

Separately, a fall in consumer confidence was shown in September’s sentiment index from The Conference Board released on Tuesday, with a fall to 79.7 – the weakest since May – from a revised 81.8 in August.

The industry group surveys consumers on their perceptions of business and employment conditions, as well as expectations for the next six months. The measure averaged 53.7 during the financial downturn.

The data coincided with third-quarter earnings reports from two of the largest US housebuilders. While Lennar and KB Home reported large jumps in earnings and revenues, order growth – a key indicator for builders who do not book revenue on a house until the sale is complete – fell short of estimates.

Stuart Miller, chief executive of Lennar, countered observations that rate hikes will take a greater toll on home sales saying the company would “continue to see long-term fundamental demand” driven by the shortfall of new construction over the past five years.

Meanwhile, KB Home chief executive Jeffrey Mezger said the recent slower pace in housebuying was “a temporary effect” and he expected to see a pickup in demand as consumers adjusted to higher mortgage rates and prices.

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