(Adds context, economist quote) July 27 (Reuters) - U.S. single-family home prices in 20 key urban markets rose in May from a year earlier at the fastest pace in nearly 17 years, a closely watched survey said on Tuesday. The S&P/Case Shiller composite index of 20 metropolitan areas gained 17.0% through the 12 months ended in May, the largest annual price increase since August 2004. A Reuters poll of economists had forecast a 16.4% increase. On a month-to-month basis, the 20-city composite index rose 1.8% from April. Economists polled by Reuters had been expecting a 1.6% increase. Among the 20 cities, Phoenix, San Diego, and Seattle reported the largest year-over-year gains in May. “The combination of historically low mortgage rates, business re-openings and the lifting of pandemic restrictions fueled a buying frenzy with multiple bids, price escalation clauses and contingency waivers,” said George Ratiu, senior economist at Realtor.com. Home prices have surged nationwide in large part due to limited supply. Contrary to the run-up to the 2007-2009 financial crisis, the current boom does not feature a frenzy of speculators and buyers with low credit scores buying homes and trying to flip them. Sales of new U.S. single-family homes declined for the third consecutive month in June, hitting a 14-month low amid supply constraints. Meanwhile, existing home sales rebounded moderately last month. Reporting by Evan Sully; Editing by Dan Burns and Andrea Ricci Our Standards: The Thomson Reuters Trust Principles.