UPDATE 1-NY Fed's Williams says rising home prices don't pose financial stability risks

(Adds more of Williams's remarks)

Oct 21 (Reuters) - U.S. home prices are rising rapidly because of low interest rates and as people seek out living space during the COVID-19 pandemic, but the trend doesn't yet pose big risks for financial stability, New York Federal Reserve Bank President John Williams said on Thursday.

Housing prices could come down later if preferences change, Williams said, but there is less credit risk in the housing markets and banks are better prepared to handle that kind of shift than they were before the Great Recession.

"I think there is clearly a risk ... that house prices could come down and I think that's a risk to the macro economy through the traditional channels," Williams said, speaking during a video interview broadcast to attendees of the Bund Summit.

"I think what it isn't right now, at least, is a big risk to financial stability." Home prices have increased by more than 30% in the United States since the coronavirus pandemic began, driven by an increase in demand and a shortage of homes for sale. Some analysts are concerned the elevated price points could limit affordability for first-time buyers and other groups. (Reporting by Jonnelle Marte; Editing by Christian Schmollinger and Kenneth Maxwell)