Home prices continued their rise across the country over the last 12 months, according to the S&P/Case-Shiller Home Price Indices for May 2015.

But first-time buyers still aren’t going all in, and May's monthly drop was the biggest since July 2014, indicating possible trouble ahead.

The 10-City Composite and National indices showed slightly higher year-over-year gains while the 20-City Composite had marginally lower year-over-year gains when compared to last month. The 10- City Composite gained 4.7% year-over-year, while the 20-City Composite gained 4.9% year-over- year. The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 4.4% annual increase in May 2015 versus a 4.3% increase in April 2015.

“As home prices continue rising, they are sending more upbeat signals than other housing market indicators,” says David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Nationally, single family home price increases have settled into a steady 4%-5% annual pace following the double-digit bubbly pattern of 2013. Over the next two years or so, the rate of home price increases is more likely to slow than to accelerate.

“Prices are increasing about twice as fast as inflation or wages. Moreover, other housing measures are less robust. Housing starts are only at about 1.2 million units annually, and only about half of total starts are single-family homes. Sales of new homes are low compared to sales of existing homes,” Blitzer said.

Here are the highlights:

  • The 10-City Composite and National indices showed slightly higher year-over-year gains while the 20-City Composite had marginally lower year-over-year gains when compared to last month.
     
  • The 10-City Composite gained 4.7% year-over-year, while the 20-City Composite gained 4.9%.
     
  • The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 4.4% annual increase in May 2015 versus a 4.3% increase in April 2015.
     
  • Denver, San Francisco, and Dallas reported the highest year-over-year gains among the 20 cities with price increases of 10.0%, 9.7% and 8.4%, respectively.
     
  • New York and Phoenix reported six consecutive months of increases in their year-over-year returns since November 2014.

On a monthly basis:

  • The National index, 10-City Composite and 20-City Composite all posted a gain of 1.1% month-over-month.
     
  • After seasonal adjustment, the National index was unchanged; the 10-City and 20-City Composites were both down 0.2% month-over-month.
     
  • All 20 cities reported increases in May before seasonal adjustment; after seasonal adjustment, 10 were down, eight were up, and two were unchanged.

As of May 2015, average home prices for the MSAs within the 10-City and 20-City Composites are back to their winter 2005 levels. Measured from their June/July 2006 peaks, the peak-to-current decline for both Composites is approximately 13-15%.

“It’s been a slow, languid summer for home values, with annual growth rates having pretty much levelled off over the past few months and mortgage interest rates in a kind of holding pattern,” said Zillow (Z) Chief Economist Stan Humphries. “But consistent slowing in the rate of seasonally adjusted month-over-month growth in the Case-Shiller indices will eventually be reflected as slow-downs in year-over-year appreciation, too.

“Mortgage rates won’t remain in this holding pattern for much longer, and will add further downward pressure on home value appreciation as soon as they start rising. Enjoy summer while it lasts, because in just a few months, things could start getting interesting again,” he said.

Since the March 2012 lows, the 10-City and 20-City Composites have recovered 32.5% and 33.5%.

“First time homebuyers are the weak spot in the market. First-time buyers provide the demand and liquidity that supports trading up by current homeowners. Without a boost in first timers, there is less housing market activity, fewer existing homes being put on the market, and more worry about inventory,” Blitzer said. “Research at the Atlanta Federal Reserve Bank argues that one should not blame millennials for the absence of first time buyers. The age distribution of first time buyers has not changed much since 2000; if anything, the median age has dropped slightly.

“Other research at the New York Fed points to the size of mortgage down payments as a key factor. The difference between a 5% and 20% down payment, particularly for people who currently rent, has a huge impact on buyers’ willingness to buy a home. Mortgage rates are far less important to first time buyers than down payments,” he said.

Denver, San Francisco, and Dallas reported the highest year-over-year gains among the 20 cities with price increases of 10.0%, 9.7% and 8.4%, respectively. Ten cities reported greater price increases in the year ended May 2015 over the year ended April 2015. New York and Phoenix reported six consecutive months of increases in their year-over-year returns since November 2014. Year-over-year returns in New York increased from 1.3% in November 2014 to 3.0% in May 2015, and Phoenix climbed from 2.0% to 3.8% in the same period.

“While the appreciation in home prices picked up slightly, it is still slower than what we’ve seen over the two years,” said Selma Hepp, chief economist at Trulia. “This lack of monthly growth suggest steadier market conditions and is a welcomed change because it indicates a more sustainable housing recovery and a balance between buyers and sellers. The National Home Price Index increased a 4.3% from last May, which is slightly higher than the 4.2% increase in April 2015.”

The expected slowdown is good for buyers, Hepp added.

“A slower pace of growth is a good news for potential home buyers because it means the housing market will be less frenzied. In the last couple of years, many have been discouraged by rapid price increases and bidding wars,” she said. “On the other hand, a slowdown in home prices may discourage some home sellers from listing their homes. When adjusted inflation prices are about 20% below the peak nationally – and at levels seen in 2003, though prices have exceeded the previous peaks in some metros, such as in Denver and Dallas.”

Before seasonal adjustment, in May the National index, 10-City Composite and 20-City Composite all posted a gain of 1.1% month-over-month. After seasonal adjustment, the National index was unchanged; the 10-City and 20-City Composites were both down 0.2% month-over-month. All 20 cities reported increases in May before seasonal adjustment; after seasonal adjustment, 10 were down, eight were up, and two were unchanged.

“The rise in home prices is presenting an opportunity to both buyers and sellers,” said Quicken Loans Vice President Bill Banfield. “The average home is increasing in value by almost $1,000 per month right now, suggesting sellers may get the sales prices they are looking for, and buyers could get a price now that won’t last much longer.”