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NEW YORK (MainStreet) — The housing recovery continues to lose momentum, as home prices rose slightly, but remain at their slowest yearly pace since February 2013.

On Tuesday, the S&P/Case-Shiller Home Price Index, which measures home prices of 20 metropolitan cities, rose 1.1% in May and is up 9.3% over the past year, compared to a 10.8% yearly in crease in April.

"We're seeing more of the same in that the housing recovery is slowly fading," says David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices. "I think we're heading gradually to 4% annual increases, compared to the 12-13% increases, which is what we saw for a good part of 2013."

One soft spot in the housing market remains pending home sales, which gauges the health of the housing market in the near future by tracking homes under contract. On Monday, the National Association of Realtors said the pending home sales index fell 1.1% in June to 102.7, compared to 103.8 in May and is down 7.3% over the past year.

"Activity is notably higher than earlier this year as prices have moderated and inventory levels have improved," says Lawrence Yun, the National Association of Realtors' chief economist. "However, supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates."

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Another weakness is the pace of construction of new homes. Earlier this month, the Commerce Department said housing starts fell 9.3% in June to a seasonally adjusted annualized rate of 893,000, but are up 7.5% year-to-date.

"My sense is the regional home builders are having trouble securing financing, especially if they don't specialize in the high-end side of the market, which is more stable than the overall market," Blitzer says. "For individuals, the days of 95% financing are gone, so the need to make a larger down payment is squeezing people into smaller houses or convincing them not to buy at all."

The credit spigots have tightened for builders and homebuyers, as banks remain prudent with lending, trying to avoid a repeat of the 2008 mortgage crunch.

Mortgage rates remain at historic lows, as Freddie Mac said the average rate on a 30-year fixed mortgage stands at 4.13%, compared to 4.31% during the same time last year. Still, mortgage rates at these levels won't be around for much longer, as the Federal Reserve scales back its bond stimulus, known as quantitative easing, which has kept interest rates low to spur economic growth. The central bank is also grappling with when to raise short-term interest rates, which have remained near zero since December 2008.

Slower increases in home prices isn't necessarily a threat to the housing market. "Stable prices gives everyone a little bit of comfort," Blitzer told MainStreet. "Even if mortgage rates rise to 6%, I don't think that, along with 4% increases in home prices will destroy affordability for homebuyers."

- Written by Scott Gamm for MainStreet. Gamm is author of MORE MONEY, PLEASE