Home prices in 20 U.S. cities rose at a slower pace in the year ended in March as the housing market began to weaken at the start of 2014.

The S&P/Case-Shiller index of property values increased 12.4 percent from March 2013, the smallest 12-month gain since July, after rising 12.9& in the year ended in February, a report from the group showed today in New York.

Still-tight lending standards for some Americans and a rise in mortgage rates since mid-2013 have slowed demand, limiting the ability of sellers to keep asking even higher prices. An increased availability of cheaper properties, faster job and income growth, and a sustained drop in borrowing costs this year would help draw more buyers into the market.

"We’re further along in the housing recovery" and "it’s only natural that those year-on-year numbers start to go down," Michael Hanson, U.S. senior economist for Bank of America in New York, said before the report. "You still need to see a little bit further improvement in the labor market, you probably need to see some easing of credit conditions, maybe rates trickle down a little bit—and you’ll start to see more housing activity."

The median projection of 28 economists surveyed by Bloomberg called for an 11.8% advance. Estimates ranged from gains of 10.8% to 12%. The S&P/Case-Shiller index is based on a three-month average, which means the March figure was also influenced by transactions in February and January.

Today’s S&P/Case-Shiller report also included quarterly figures for the market nationally. Prices covering all of the U.S. climbed 10.3% in the first quarter from the same period in 2013.

Home prices adjusted for seasonal variations increased 1.2% in March from the prior month, exceeding the 0.7% median in the Bloomberg survey. Unadjusted prices rose 0.9%.

The year-over-year gauge, based on records dating back to 2001, provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

All 20 cities in the index showed a year-over-year gain, led by a 21.2% climb in Las Vegas and a 20.9% advance in San Francisco. Cleveland showed the smallest year-over-year increase, with prices rising 3.9%.

Home sales have been slow to pick up from a slump in early 2014. Purchases of new homes climbed last month by 6.4%, the first gain in three months, to a 433,000 annualized rate, Commerce Department data showed last week. The advance was led by a 47.4% surge in the Midwest.

Sales of previously owned homes rose 1.3% in April, the first gain this year, data from the National Association of Realtors showed. The increase showed signs of underlying softness, as investors continued to play a big role in the market and the share of first-time buyers was little changed.

Housing began to cool in the middle of 2013, with residential investment becoming a drag on the economy during the last two quarters, its worst six-month performance since the first half of 2009.

The slowdown hasn’t gone unnoticed at the Federal Reserve. Policy makers cited a potential "persistent slowdown" in housing as a downside risk for growth, according to minutes of the April 29-30 policy meeting.

"Housing indicators remain mixed," David Blitzer, chairman of the S&P index committee, said in a statement. "Mortgage rates are near a seven-month low but recent comments from the Fed point to bank lending standards as a problem."

The rise in borrowing costs eased in the second half of 2013, providing more incentive for buyers to come off the sidelines. The average rate on a 30-year, fixed mortgage was at 4.14 percent in the week ended May 22, down from 4.53% at the start of the year, according to Freddie Mac. The latest rate is less than half its 8.52% average in data back to 1971.

Home-improvement retailers are looking for brighter prospects as the spring selling season heats up.

While the long winter held receipts at Lowe’s Cos. (LOW) established stores to a 0.9% gain in the quarter ended May 2, trailing the 5% increase analysts estimated, the Mooresville, N.C.-based company maintained its forecast that revenue by that measure would advance 4% this year.

"We believe stronger job and income growth and gradually loosening credit conditions indicate that the environment for home improvement spending should remain favorable," Chief Executive Officer Robert Niblock said on a May 21 earnings call.

First-quarter sales and profit trailed analysts’ estimates at Home Depot Inc. (HD), the largest home improvement retailer, ending six straight years of exceeding or meeting projections. The chain reiterated its forecast that revenue would gain 4.8% this year and boosted its projection for profit.

Bloomberg News