In a sign that prospective home buyers are trying to purchase homes before mortgage rates rise even further, the number of people who signed a contract to buy a home in the United States has risen to levels not seen since the end of 2006.

According to the National Association of Realtors, the pending home sales index rose 6.7% to a seasonally adjusted 112.3 in May. During the past calendar year, pending home sales climbed by more than 12%.

Signs of the times

The dramatic rise in home purchases is a sign that buyers are interested in closing on their homes and, by extension, locking in on interest rates before they increase further. Mortgage rates went up in May and spiked again after Ben Bernanke hinted that the Federal Reserve might reduce its bond purchases later this year.

The recent increase forecasts impressive gains for new and existing home sales in the months ahead. Usually, the closing of a home follows the signing of a contract by one or two months.

“This report should provide comfort as it shows that housing is still holding in,” according to Jennifer Lee, an economist at BMO Capital Markets.

Concern about the future?

The fear, however, is that rising mortgage rates could dampen the buying spree later in the year. Although rates have dropped recently, they are considerably higher than their near-record lows of 3.35% of last year. Currently, the 30-year mortgage average stands at 4.29%, down from 4.46% the previous week.

“Despite the rise in mortgage rates and house prices, housing affordability will still be well above its long-term average,” according to Joseph LaVorgna, economist at Deutsche Bank.

Sales of existing homes skyrocketed to more than 5 million in May, a number not seen in more than three years. This is further evidence that the real estate market is recovering from the crash that occurred in 2007 and 2008.

The online advantage

The improvement in the real estate market will likely lead to an increase in the online purchase of homes. Some people might enjoy beating the pavement in their search for a new residence, but many will enjoy the convenience of shopping for an agent and/or a home online.

This can be especially beneficial for people shopping for a new home in a distant geographical area. In that case, initial screenings conducted online can be a significant timesaver.

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