Things are looking up for housing markets around the country, and while economists are predicting a slow recovery that potentially could be derailed by a number of economic challenges, the future looks positively rosy compared with the depths of the Great Recession.

Housing began to stumble toward a recovery early in 2009, and gained some stability toward the end of the year and through early 2010, bolstered by the government's First-Time Homebuyer Tax Credit. The Harvard University Joint Center for Housing Studies' (JCHS) "2010 State of the Nation's Housing" report, released on June 14, points to improved home affordability for first-time buyers and the government's unprecedented intervention as the drivers of all the existing home sales that occurred in 2009.

However, the homebuyer tax credit expires at the end of June 2010, existing home markets are still overwhelmed by record numbers of foreclosures, and the threat of more to come could further flood the market and drive down demand for new construction. There is a possibility the homebuyer tax credit could be extended, however. (Read theWall Street Journal's article about this.)

According to the JCHS report, the housing recovery will hinge on employment recovery. Historically, high employment rates have driven both existing-home purchases and new-home purchases. Unemployment is at an all-time high, and as of April 2010, 6.7 million workers had been out of work for six months or longer. Early in the recession, it was overleveraged and overextended homeowners that drove mortgage defaults to new highs, but unemployment has become the biggest driver of foreclosures. According to the report, high unemployment rates are both preventing people from purchasing homes and putting those who already own homes at risk of foreclosing as their financial reserves dwindle. In addition, the estimated one in seven homeowners whose homes are worth less than they owe on their mortgages also could swell the potentially rising tide of foreclosures.

While economists report that labor markets are improving and should continue to do so, they also expect the unemployment rate to remain high for an extended period as job growth catches up to the increase in the labor force, says the report. It's mostly young and minority workers who experience the worst effects of joblessness, and their incomes may take longer to recover once they are re-employed.

Over the next 10 years—after both housing and employment have regained some stability—and beyond, demographic forces will drive housing's growth in new ways, according to the report. The echo-boom generation, with 80.8 million members (born 1986–2005), already surpasses the baby-boom generation in size, and by 2025 the U.S. Census Bureau predicts it will grow to 92.9 million, largely due to a resurgence in immigration.

Immigration has already been responsible for swelling the ranks of the baby-bust generation (aka Generation X, born 1966–85) so that its numbers nearly match that of the boomers, although it is more diverse, with 37 percent of its members being minorities. Minorities make up an even larger portion—42 percent—of the echo boomers.