Pending Home Sales Highest Since December '06

Contracts to purchase previously owned U.S. homes rose in May to the highest level in more than six years as buyers rushed to the market to lock in deals before interest rates climb higher.

The National Association of Realtors said on Thursday its Pending Home Sales Index, based on contracts signed last month, increased 6.7 percent to 112.3, the highest level since December 2006.

Economists polled by Reuters had expected signed contracts, which become sales after a month or two, to rise only 1.0 percent. The gain followed a 0.5 percent drop in April that was previously reported as a 0.3 percent gain.

Compared to last year contracts were up 12.1 percent.

"Even with limited choices, it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher," said NAR chief economist Lawrence Yun.

Rates on U.S. home mortgages surged to the highest level in almost two years after the Federal Reserve laid out a plan to wind-down its stimulus program. The announcement incited a sell-off in the bond market that drove borrowing rates higher.

Economists do not think the spike in mortgage rakes is sufficient to derail the housing market recovery, which has become a bright spot in the economy, buffering against fiscal austerity in Washington. The housing market has seen soaring home prices and tight supply.

Contracts were up in the Midwest, South, and West and the Northeast was unchanged.