06/27/2013 06:14 pm ET Updated Aug 27, 2013

Kicking the Tires on Housing Data

A report on home prices released in the last week of June suggests that the real estate recovery is still humming along. A closer look reveals potential signs of trouble -- and higher mortgage rates are the culprit.

The good news? The recovery is gaining traction ... maybe.

The S&P/Case-Shiller Home Price Index released its latest monthly figures on June 25, and the report indicated that the recovery in home prices is continuing.

Highlights included a robust increase in the most recent month's index for a composite of 20 major metropolitan areas. That composite also had a 12.1 percent year-over-year increase, with home prices in all 20 of the metro areas comprising the index higher than they were a year earlier.

But what happens when you kick the tires?

It would be great to accept all of the above as evidence that the economy and the housing market are still on track. Unfortunately, when you kick the tires a little you find:

  1. The housing data pre-dates the recent rise in mortgage rates. The S&P/Case-Shiller report may have been released in late June, but it is comprised of data from February, March, and April -- all of which were before mortgage rates started their climb.
  2. A mortgage calculator demonstrates the effect of higher rates on home prices. It's pretty simple to use a mortgage payment calculator to see how, for any given level of monthly payment, raising the interest rate will lower the value of the house you can afford. While people might be willing to step up to a higher payment in a robust economy, conditions just aren't that strong right now.
  3. Mortgage application activity is slipping. On June 26, the Mortgage Bankers Association reported that over the past week, mortgage application activity had slipped to the lowest level since November of 2011 -- when mortgage rates were at a similar level to where they were over the past week. This is an example of how higher rates can have a dampening effect on mortgage activity.

Certainly, a positive housing report is more encouraging than a negative one. However, until home price data is available for the months following the rise in mortgage rates, you can't be completely confident that the rally in real estate has escaped unscathed.

"This article originally appeared on Kicking The Tires On Housing Data."