Homebuyers have a limit to what they can afford, and sellers are slowly having to adjust to that new reality.

Home prices increased 4.7 percent annually in December, down from 5.1 percent in November, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. That is the slowest pace since August 2015.

The 10-city composite annual increase came in at 3.8 percent, down from 4.2 percent the previous month. The 20-city composite rose 4.2 percent year over year, down from 4.6 in the previous month.

"Even at the reduced pace of 4.7 percent per year, home prices continue to outpace wage gains of 3.5 percent to 4 percent and inflation of about 2 percent," said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. "A decline in interest rates in the fourth quarter was not enough to offset the impact of rising prices on home sales."

The average rate on the 30-year fixed jumped to just over 5 percent at the start of November but then began falling in December. It has been hovering at just below 4.5 percent for the past two weeks, according to Mortgage News Daily. Lower rates not only help potential buyers afford a new home, they also help more buyers qualify for a mortgage.