The growth in home prices slowed sharply in May, according to S&P Case-Shiller housing data released Tuesday. It was the lowest year-over-year growth rate since February of 2013.

The home price index covering 20 cities increased 9.3% in May, lower than the 9.9% analysts were expecting and down from a 10.8% yearly pace in April.

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Doug Duncan, chief economist for Fannie Mae, is not surprised. Duncan expected home price appreciation in 2014 to slow to about half of what it was in 2013, which he says appears to be happening. He pins it on a slowdown in demand, due to a mortgage rate increase that began a little over a year ago. Rates have risen more than a full percentage point as a result of the anticipation of Federal Reserve tapering of bond buying and the subsequent start of that process.

"People who may have been buying now bought earlier," he tells us. "Even the modest rise in interest rates has slowed things down."

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Also this week, pending sales of existing homes released Monday showed an unexpected decline of 1.1% in June to a level 7.3% below last year. But it's not all bad. A read on existing home sales in June showed them climbing for the third month to their fastest annual pace since October.

While data on housing has been mixed, Duncan says "clearly housing has paused." He says it's all inline with how housing markets traditionally react in response to a rapid rise in mortgage rates, based on Fannie Mae's analysis of past rapid, short-term rate increases.

Looking more broadly, an average 30-year fixed mortgage rate of 4.13% is still an historic low. So what does that say about the economy that a shift from ultra-low borrowing costs to slighly less ultra-low borrowing costs has made this dent?

Duncan says it's "troubling but understandable given what's going on in the job market." Though he says employment has been picking up, Fannie Mae's research shows we won't have the number of peak full-time jobs that we had before the crisis for another year. So households are acting conservatively when it comes to big ticket items. Perhaps nothing qualifies as "big ticket," quite like a house.

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