Home prices continued rising in September, but many cities posted smaller monthly gains, according to a closely watched barometer of the housing market.

The 20-city Standard & Poor's/Case-Shiller Index increased 0.7% in September from August and was 13.3% ahead of a year ago, S&P said Tuesday. While 13 of 20 cities showed higher year-over-year growth rates than in August, 19 cities had lower monthly increases in September than August.

The report shows a housing market seemingly strong enough to tolerate small increases in mortgage rates, despite declining numbers of home sales in recent months, Barclays economist Michael Gapen said. The outlook for prices is still solid heading into next year, as unemployment will dip below 7% of the workforce on its way to 6.5%, said Joel Naroff, president of Naroff Economic Advisors.

"It's a good sign for future sales and for new construction,'' said Naroff, arguing that higher prices will enable people whose mortgage balances have been higher than their homes' value until recently to sell their homes and trade up. "It will bring many more houses onto the market.''

Year-over-year comparisons show Las Vegas' prices were up 29.1% in September, the highest percentage. Other cities with gains above 20% included: San Francisco, 25.7%; Los Angeles, 21.8%; and San Diego, 20.9%.
The double-digit price gains of the last year will moderate, just as month-to-month gains in median prices have slowed in data reported by the National Association of Realtors, Naroff said.

Another factor is that prices have been pushed higher by a shortage of homes on the market, and those gains will moderate as higher prices, still well below 2006 peaks, attract more sellers.

"Vegas isn't going to go up 29% next year,'' Naroff said. "But I'm rooting for more price increases, because the natural churn and turnover doesn't happen until people have the confidence to list their homes.''
That deceleration has begun to show up in some cities in Case-Shiller's data, as well.

In September, Las Vegas home prices climbed 1.3% from August, less than half the 2.9% gain from July to August. In Tampa, a 1.1% gain in September followed a 2.7% month-to-month jump in August. Charlotte was the only city in the index to show a month-to-month decline in prices; its 0.2% dip was its first since November 2012.

Detroit's 1.5 percentage point monthly gain was the strongest in the 20-city group, but Detroit is also the only market where prices are still below their January 2000 level, according to S&P.

"Overall, a price slowdown is healthy, and we're seeing evidence of a slowdown in the most overheated markets but no signs of an overall price crash,'' Trulia.com chief economist Jed Kolko said.

Trulia's data on current asking prices shows the same pattern of prices still rising, but at a slower pace, he said.

Two other reports on the housing market released Tuesday provided data on building permits and mortgage rate trends in October.

U.S. developers received approval last month to build apartments at the fastest pace in five years, a trend that could boost economic growth in the final three months of the year.

Permits to build houses and apartments were approved at a seasonally adjusted annual rate of 1.034 million, the Commerce Department said Tuesday. That's 6.2% higher than the September rate of 974,000 and the fastest since June 2008, just before the peak of the financial crisis.

More housing construction is one of the keys to pushing unemployment lower, economists including Moody's Analytics' Mark Zandi have argued. A more normal pace of construction could push the unemployment rate, now 7.3%, as low as 6%, Zandi said in an interview in September.

Meanwhile, buying a new home in October was slightly less costly, as U.S. mortgage rates interrupted their upward trend, the Federal Housing Finance Agency reported Tuesday.

Contract interest rates on the composite of all mortgage loans decreased 0.04% to 4.32% from September to October, the agency said.

The FHFA's interest rate survey shows the average interest rate on a conventional, 30-year, fixed-rate mortgage of $417,000 or less was 4.58% in October, a decline of five basis points.