My crystal ball, the one I’ve been using for nearly 20 years, is showing me some very interesting things - two of which could dramatically impact home sales in a good way. 

Although it’s a bit fuzzy, we could see interest rates fall back in the mid to lower four percent range by October into November.  And November might also provide us with yet another surprise.

Interest rates have been in this current range for quite some time primarily fueled by an economy that’s been limping along all year.  The Treasury has also sold billions upon billions of Treasury notes of different maturities, and the Fed has also bought billions of mortgage-backed securities as well.   When the Fed made their initial announcement last November of their intentions to buy a significant amount of mortgage-backed securities, mortgage rates plummeted from the mid-six percent range into the fours almost overnight.

But in October, those purchases will end on schedule.  So what will rates do?  They’ll start to rise, but that’s not what my crystal ball is telling me. 

My crystal ball says that the economy will continue to struggle and the recent run-up in the stock markets has been a bit premature.  And this is where it gets fuzzy - it’s possible the Fed will see the stock markets decline, causing them to extend their purchases of mortgage backed securities for another six months or so.  If that happens, rates will move back down into the four percent range.

This is by no means any guarantee.  I’m not always right.  But it’s certainly within the realm of rate possibilities.

And what about the other November surprise?  My crystal ball is telling me that the $8,000 first time homebuyer tax credit set to expire November 30 will in fact not expire and will be extended well into 2010. 

But why is this tax credit only for first-time homebuyers?  First-time home buyers are about 40% of the market – is that enough to effect a recovery in housing? Why not spread the love and let everyone who buys a home get a tax credit?  At one time, investors and second home buyers were one-third of the market. We could certainly use their help, not to mention people who want to sell their McMansions. Talk about Cash for Clunkers!

My crystal ball says that will happen.  Not only will it happen, but because the $8,000 tax credit is such a success, everyone who buys a home in 2010 can get a tax credit of…$10,000!

I like my crystal ball, don’t you?