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Home prices in the Seattle market rose 1.8 percent in June over the previous month and 11.8 percent over the past 12 months, according to the closely watched S&P/Case-Shiller 20-city home-price index.

Through June, average U.S. home prices had returned to their spring 2004 levels, although the pace of the increase appeared to be slowing, officials said.

The 20-city index posted a 2.2 percent monthly gain in June and was up 12.1 percent over the past 12 months. In May, the index’s monthly gain was 2.5 percent.

“With interest rates rising to almost 4.6 percent, homebuyers may be discouraged and sharp increases may be dampened,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

While all 20 cities posted monthly gains in June, 13 saw a slowdown in average price growth. Atlanta’s average home price grew 3.4 percent, the highest among the cities.

Las Vegas and San Francisco led the pack in annual gains, with average prices climbing more than 24 percent.

The recovery in Seattle housing prices decelerated in June. After a 3.1 percent monthly gain in May, Seattle’s largest since April 1990, average prices grew 1.8 percent in June, according to Case-Shiller.

The combination of job gains, low mortgage rates and a tight inventory of for-sale homes fueled the sharp increases in sale prices. But 30-year mortgage rates have climbed more than a full percentage point since the beginning of May, according to Freddie Mac, the government-sponsored enterprise that purchases mortgages from lenders.

Economists blamed that jump in rates for a slowdown in sales of new homes in July.

“Over the next year, home-value appreciation rates will slow as investors exit the market, mortgage interest rates rise, negative equity falls, builders ramp up and more homes come on the market,” Stan Humphries, chief economist at Seattle-based Zillow, said in a statement.

The S&P/Case-Shiller index measures the average price change in existing single-family homes that sold during a three-month period and didn’t undergo substantial remodeling since the home’s previous sale. Homes owned for less than six months are excluded.

The index includes resales of foreclosed homes. Because lenders tend to sell those homes at a discount, investors who bought them and are reselling them now are reaping big profits, pumping up the gain in average home prices, according to Zillow officials.

If one looks at the broader housing market and non-distressed home sales, Humphries said, U.S. home prices are increasing about 6 percent annually.

A limited number of homes are for sale, partly because a significant number of homeowners still owe more than their homes are worth, especially at the market’s entry level.

The average home price in the Seattle area — which in Case-Shiller’s index covers King, Snohomish and Pierce counties — is about 19 percent off the peak in summer 2007.

But in the lower third of the Seattle market, homes that sold from April to June for under $278,206 are still about 30 percent below the peak, Case-Shiller data shows.

“Most of the foreclosures, most of the damage, all the really nasty stuff is focused there,” said Blitzer. It’s unfortunate, he said, because “those are the people whose incomes are lower and are least well-positioned to bear the damage.”

Overall, fewer homes with outstanding mortgages are in financial distress, according to another report released Tuesday.

California-based CoreLogic, which produces the Case-Shiller index for Dow Jones, said 4.87 percent of outstanding mortgages in the Seattle-Bellevue-Everett area in June were more than 90 days delinquent, in foreclosure or repossessed by the lender. That’s down from 6.6 percent a year ago and the lowest level since October 2009.

The Seattle market’s foreclosure inventory — the percentage of mortgages in some stage of the foreclosure process — dipped to 1.9 percent from about 2.2 percent, CoreLogic reported.

Sanjay Bhatt: 206-464-3103 or On Twitter @sbhatt