Has the US housing sector reached a bottom, getting close? This is the big question, and the answer is a bit complicated. House prices have fallen by 34% in nominal terms, or 41% in real terms (inflation adjusted). In nominal terms, we are back to 2002, and in real terms back to 1999. This is good enough to declare that the bubble years have been fully reversed. So, back to normal in the US housing sector? Not so fast. There are still open wounds from the bubble era: Uncertainty about prices bottoming out: The figures above don’t mean that prices are about to jump. Bottoms have already been announced in the past, and many people are wary of buying a house when prices can still fall in their opinion: this is the deadly deflation spiral. Foreclosures: Bernanke mentioned that without so many foreclosures, the situation would have been better. The foreclosed homes are weighing on prices and making it hard for them to rise and encourage more economic activity. Legal legacy: Subprime mortgages, robo-signing and other stories from the bubble period have triggered stronger regulation, so making a loan now is much harder. Economic uncertainty: With the slow recovery, people are less eager to lend money and banks are much more careful will lending money, when all the legal hurdles are passed. This comes despite very low interest rates and a lot of liquidity that banks have. The result is that existing home sales are still depressed. Activity is very weak and this is a burden on the whole economy. Yet positive signs can still be seen: housing is turning a page when it comes to new homes, that don’t carry the legacy: Building permits rose to a pace of 0.75 million and pending homes sales recently leaped by 4.1%. The current level in building permits is the highest since September 2008. Also here, skeptics “blame” the good figures on good weather, that enabled more activity, yet with real prices back to 1999 levels, some probably grab the opportunity. All in all, the housing sector is at, or very near the bottom. Yet like the economy as a whole, the pace of recovery will probably be slow due to the heavy legacy. The Federal Reserve is worried about the situation, and could direct a potential QE3 towards this market: by buying Mortgage Based Assets (MBAs). This option, like QE3, remains on the table, yet apart from some recovery in the housing sector and continued growth in the economy as a whole, there’s still a very strong reason not to push through with QE3: inflation – a mandate of the Federal Reserve. This article is part of the Forex Monthly Outlook for May. You can download it by joining the newsletter in the form below, which appears on any article on Forex Crunch. Yohay Elam Yohay Elam Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts. Yohay's Google Profile View All Post By Yohay Elam Opinions share Read Next USD/CHF: Trading the Swiss CPI Kenny Fisher 10 years Has the US housing sector reached a bottom, getting close? This is the big question, and the answer is a bit complicated. House prices have fallen by 34% in nominal terms, or 41% in real terms (inflation adjusted). In nominal terms, we are back to 2002, and in real terms back to 1999. This is good enough to declare that the bubble years have been fully reversed. So, back to normal in the US housing sector? Not so fast. There are still open wounds from the bubble era: Uncertainty about prices bottoming out: The figures above don't mean that prices… Top Forex Brokers All Brokers Sponsored Brokers Broker Benefits Min Deposit Score Visit Broker 1 $100T&Cs Apply 0% Commission and No stamp DutyRegulated by US,UK & International StockCopy Successfull Traders 9.8 Visit Site FreeBets Reviews$100Your capital is at risk.2 T&Cs Apply 9.8 Visit Site FreeBets Reviews$100Your capital is at risk.3 Recommended Broker $100T&Cs Apply No deposit or withdrawal feesTrade major forex pairs such as EUR/USD with leverage up to 30:1 and tight spreads of 0.9 pips Low $100 minimum deposit to open a trading account 9 Visit Site FreeBets ReviewsYour capital is at risk.4 T&Cs Apply Visit Site FreeBets ReviewsYour capital is at risk.5 Recommended Broker $0T&Cs Apply Trade gold, silver, and platinum directly against major currenciesUp to 1:500 leverage for forex trading24/5 customer service by phone and email 9 Visit Site FreeBets ReviewsYour capital is at risk.