Economic and market conditions may be setting the stage for a housing recovery, but economists predict that any growth in 2010 will be slow due to the ongoing inaccessibility of financing for many borrowers and concerns about unemployment.

While overall housing starts and completions in December 2009 dropped by 4 percent following modest improvements in November, the number of housing permits authorized jumped by 10.9 percent. According to the National Association of Home Builders (NAHB), this indicates a potential increase in housing activity in the near future, as home builders who previously cut back sharply on production prepare to ramp back up to meet an expected spike in demand from customers looking to take advantage of the home buyer tax credit before it expires.

The U.S. Census Bureau's latest data on new residential construction also shows that permits for all privately owned housing units were at a seasonally adjusted annual rate of 653,000 in December 2009—a 15.8 percent improvement over the December 2008 estimate. Single-family permits rose 8.3 percent, to a rate of 508,000 (a year-over-year improvement of 37.3 percent). Permits for units in buildings of five or more units also increased last month to a rate of 127,000—33.7 percent higher than November's rate. Single-family housing starts fell 6.9 percent in December to a rate of 456,000, while starts for units in buildings of five or more units rose 15 percent, to 92,000. Overall completions in December dropped by 11.2 percent from November, to a rate of 768,000—25.3 percent below December 2008's rate of 1,028,000. Completions of single-family units fell to 503,000, 11.1 percent below November's rate. Completions of units in buildings of five or more units also dropped in December to a rate of 245,000.

The Census data further shows that an estimated 553,800 housing units were started in 2009, 38.8 percent below total starts in 2008. Last year saw a 28.9 percent decrease in overall housing completions as well, with an estimated 796,000 housing units completed.

Meanwhile, the latest NAHB/Wells Fargo Housing Market Index finds that home builder confidence in the single-family new-construction market remains low, falling one point in January to 15—its lowest reading since June 2009. The glut of foreclosed homes currently for sale and continuing poor job markets will keep demand for new-built single-family homes low.

"Home buying conditions have rarely been as good as they are right now, but consumers are still waiting to see significant positive signs of improvement in employment and confidence, and this is slowing buyers' return to the market," said NAHB chief economist David Crowe in a statement about the confidence index. "Meanwhile, competition from foreclosed homes is also severely impacting new-home sales. That said, expected improvement in the job market this spring will help propel the housing recovery as we head into the prime home buying season."

Crowe remains cautious, however, citing the high level of unemployment—which he expects will peak at 10.2 percent in the first quarter and remain elevated through 2011—and the lack of available financing for residential development as conditions that will slow housing's recovery.

The NAHB's economists are predicting that the single-family sector will lead housing's recovery with a 37.7 percent increase in single-family residential starts in 2010. The organization has forecast a 25.6 percent increase in overall housing starts this year, predicting a total of 697,000 housing unit starts.

In its recently released "Construction Outlook: Fourth Quarter 2009 Report", construction industry management consultancy/ investment banking group FMI agrees that residential construction will begin recovering in 2010. The report says 2009 marked the bottom of the housing downturn, in terms of percentage of decline, and that 2010 will mark the bottom in terms of dollar volume. Specifically, FMI expects residential construction to total $277.7 billion in 2010, with single-family construction accounting for $129.5 billion (down from its 2005 high of $434.9 billion). In the coming year, according to FMI's report, residential construction will account for 31 percent of overall construction activity, compared to 53 percent at its peak.