The rise in new home prices may be slowing, a government report yesterday suggested.

The U.S. Census Bureau’s constant quality price index rose 0.6% in the third quarter after a 2.5% gain from April through June. The increase was the smallest since the second quarter of 2003, when prices were unchanged.

The report adds to evidence that the housing market is cooling as increases in prices and interest rates make homes less affordable. Housing affordability fell to near a 14-year low in the second quarter, according to the National Association of Realtors.

“Prices have gone so far out of whack compared to where incomes are that increases have to slow,” an analyst at Maria Fiorini Ramirez, Carl Steen, said. “This is highly indicative of a coming slowing in housing.”

Sales of new and existing homes probably will decline in 2006 after reaching a record 8.41 million this year, the National Association of Realtors said on October 28.

“We’ll continue to see smaller and smaller pricing gains,” a senior market economist at Dresdner Kleinwort Wasserstein, Kevin Logan, said. “The contribution to the economy from the housing sector will diminish, but it’s not going to be a recession by any means.”

The housing boom has contributed to economic growth by fueling spending financed by borrowing against appreciated home values. Consumer spending rose 3.9% at an annual rate last quarter, the most this year.

Housing accounts for about 5% of the economy. Economists expect spending to slow as higher heating bills squeeze household budgets. At the same time, higher mortgage rates make it less likely that homeowners will refinance, taking away another source of increased consumer spending.

While the quarterly increase in prices was the lowest in two years, year-over-year prices still reflect strong appreciation in home values. From the third quarter of last year to the same period this year, prices rose 7.4%.

The Office of Federal Housing Enterprise, or Ofheo, will report on third quarter home-price appreciation on December 1. Prices climbed 13.4% in the second quarter from a year earlier, Ofheo said on September 1. That was the largest gain in 26 years.

Some economists expect new home prices to rise more in 2006 than this year because of higher construction costs. New home prices will rise about 7.3% next year, compared with a projected 4.1% gain in 2005, according to the National Association of Realtors.

Still, the Realtors group expects price gains for existing homes to slow. The national median existing home price will rise 5.3% next year after increasing 12.4% this year, to $208,100, the group said.

“As interest rates rise and home sales ease, it should help to bring the market closer to equilibrium between home buyers and sellers,” the chief economist of the National Association of Realtors, David Lereah, said in a statement on October 28. “That is expected to take pressure off of home prices and allow appreciation to settle to a more normal pace in 2006.”

The average rate on a 30-year fixed mortgage rose to 6.15% in the week ended October 28,according to Freddie Mac, the no. 2 mortgage buyer. That level was the highest since July 2004.

Rates have been at more than 6% the last three weeks.

“Mortgage rates are going up but they’re coming off of 40-year lows,” the chief executive of St. Joe, Peter Rummell, said in an interview on October 25. “The world works just fine on a 6% or 7% or 8% mortgage.”

At the current mortgage rate, the monthly principal and interest payment on a $100,000 loan would be $609.23. When rates were at a record low of 5.21% in June 2003, the cost was $549.73. St. Joe, the largest private landowner in Florida, cut its 2005 earnings forecast because resort-housing sales slowed after Hurricane Katrina and other storms reduced tourism in the state. The company said rebuilding may raise labor and building-material costs.