) -- Pending home sales rose 3.5% in November, according to a National Association of Realtors report released Thursday morning.

An index that measures the number of contracts to buy previously owned homes in the U.S. rose 3.5% in November month-over-month but remain 5% below year-earlier levels.

Economists had expected the data to fall 3% after

pending home sales rebounded 10.4% in October. October's rate of pending home sales came in far better than expected but remained 20.5% lower than in the year-earlier month.

Pending home sales are viewed as an indicator of future home sales.

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Sales of newly built homes rose 5.5% in November. Despite the uptick, the figure came in slightly below expectations and were 21.2% below year-earlier levels.

The government data followed a report on Wednesday from the National Association of Realtors, which showed that

sales of previously occupied homes rose 5.6% in November to a better-than-expected seasonally adjusted annual rate of 4.68 million units.

"Continuing gains in home sales are encouraging, and the

positive impact of steady job creation will more than trump some negative impact from a

modest rise in mortgage interest rates, which remain historically favorable," said National Association of Realtors chief economist Lawrence Yun, commenting on existing-home sales, indicating he is hopeful about the housing market in 2011.

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"It is welcoming to see a solid double-digit percentage gain, but activity needs to improve further to reach healthy, sustainable levels. The housing market clearly is in a recovery phase and will be uneven at times, but the improving job market and consequential boost to household formation will help the recovery process going into 2011," said Lawrence Yun, NAR chief economist, who said excellent housing affordability conditions are drawing home buyers.

"More importantly, a return to more normal loan underwriting standards and removal of unnecessary underwriting fees for very low risk borrowers is needed and could quickly help in the housing and economic recovery," Yun said.

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The economist added that he expects home sales to continue the upward trend from their cyclical low over the summer.

"Even so, we now have some consumer concerns regarding the mortgage interest deduction, an important component in housing affordability," he said. "Preliminary results of a new survey show nearly three out of four home owners and two out of three renters consider the mortgage interest deduction to be extremely or very important to them. Home owners already pay between 80% and 90% of all federal income taxes and additional tax burden would hurt them and the economic recovery, so we have a reasonable hope that it will not be changed."

Homebuilders began work on 3.9% more privately-owned homes in November, while applications for building permits fell 4%.

The mixed data further confirms that the "housing market recovery remains fragile at best," said Kevin Brungardt, CEO of RoundPoint Financial, a mortgage origination and servicing firm.

He cited the usual suspects of high unemployment, potential buyers' low confidence among in the stability of home prices and the large inventory of distressed properties that still need to be cleared.

Foreclosure activity declined dramatically in November, but Brungardt said the 21% month-over-month drop was "a false positive," a result of the so-called "robosigning" scandal that led to procedural delays and foreclosure moratoriums at servicers like

Bank of America

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JPMorgan Chase

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. Even

Fannie Mae



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Freddie Mac


, which stand behind the vast majority of U.S. mortgages, have said they won't push forward on foreclosures during the holiday season.

Brungardt estimated that the shadow inventory of homes could take two to three years to clear to a point where housing supply and demand begin to match up again, and that no acknowledged housing bottom will appear until that shadow inventory is significantly curtailed.

Homebuilders should expect material dampening of

new-home purchases until then, Brungardt forecast. Current homeowners will also continue to be impacted unfavorably, he told



Stocks in the homebuilder sector were mixed Thursday morning. The

SPDR S&P Homebuilders

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, an exchange-traded fund that tracks the sector, was 0.2% higher while the

iShares Dow Jones US Home Construction

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ETF was flat%.

The U.S. housing market continues to struggle and has been under tremendous pressure for some time. Demand fell further after the

expiration of federal tax credits for homebuyers earlier this year


-- Written by Miriam Marcus Reimer in New York.

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