updated 5/4/2010 3:30:20 PM ET 2010-05-04T19:30:20

The number of buyers who signed contracts to purchase homes surged more than expected in March, another sign that government incentives are propelling the housing market this spring.

The National Association of Realtors said Tuesday its seasonally adjusted index of sales agreements for previously occupied homes rose 5.3 percent from a month earlier to a reading of 102.9.

It was the highest level since October and a 21 percent increase from the same month a year earlier. February's reading was revised upward slightly to 97.7. Economists surveyed by Thomson Reuters had expected the index would rise 4 percent to 101.5.

The index provides an early measurement of sales activity because there is usually a one- to two- month lag between a sales contract and a completed deal.

Pending sales surged by 13 percent in the South, 2 percent in the West and 1 percent in the Midwest. They fell 3.3 percent in the Northeast.

The federal government has provided a big boost to home sales this spring by offering first-time buyers a tax credit of 10 percent of the purchase price, up to $8,000. There is also a credit of 10 percent, up to a maximum of $6,500, for homeowners who buy and move.

These incentives stimulated home sales, but the deadline was April 30. Many analysts now project sales will drop sharply in the second half of the year. Some expect prices to plunge as well, especially if mortgage rates rise and more foreclosed homes hit the market.

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