Home prices in 20 U.S. cities rose more than forecast in May from a year earlier as a government tax credit temporarily underpinned sales.
The Standard & Poor's/Case-Shiller index of property values increased 4.6% from May 2009, the biggest year-over-year gain since August 2006, the group said Tuesday.
A retreat in demand since the April 30 contract-signing deadline to be eligible for an incentive worth up to $8,000 raises the risk that home prices will slacken in coming months. The lowest mortgage rates on record are making houses more affordable, which may help overcome some of the effect of the mounting foreclosures that are pressuring property values.
"We just are going to muddle through for a while," said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., who forecast the index would rise 4.5%, the closest of those surveyed. "I'm not looking for big movement from here either up or down."
Economists forecast the home price index would rise 3.9% after a 3.8% year-over-year increase in April, according to the median of 26 forecasts in a Bloomberg News survey.
The gauge rose 0.5% in May from the previous month after adjusting for seasonal variations, following an April increase of 0.6%.
Unadjusted prices climbed 1.3% from the earlier month.
The year-over-year measure provides better indications of trends in prices, the group has said.
Thirteen of the 20 cities in the S&P/Case-Shiller index showed a year-over-year increase, led by an 18% gain in San Francisco and a 12% rise in San Diego.
Compared with the previous month, 19 of the 20 areas covered showed an increase on an unadjusted basis, led by a 2.8% gain in Minneapolis and a 2% advance in Atlanta. Las Vegas was the only city to show a month-over-month drop.
"There may still be some residual impact from the homebuyers' tax credit," David Blitzer, the chairman of the index committee at S&P, said in a press release.
"It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy."