Recently, tremors were sent through the wire as news of another wave of housing declines were posted in the monthly real estate reports. The double dip in home prices is here. The recession is here. The financial crisis is just starting…or is it. The sales of homes were down this month, however, the conditions for home sales last year were very different. In November 2009, legislation was created that allowed eligible home purchasers a tax credit of up to $6,500 in addition to the new home purchase tax credit increase to $8,000. The expiration date for a contract for purchase was May 1, 2010. The incentives that this provided for homeowners was very meaningful. If the average home price in April 2010 was $172,300, as shown at realtor.org, then this gives people who purchased in this period a discount of 3.773% to 4.619% To put this into perspective, for the average home, this is more than a year of principal and interest payments. Furthermore, if you adjust the average price against these tax credits, then the average home price is between $164,300 and $165,800, a truly small difference from $163,700 — the average home price in April 2011. Again, this credit is equivalent to a year of mortgage payments or conversely, a year of mortgage payments to go on vacations, buy more stuff, or pay down credit cards. Since this tax credit requires a paper return, most people will not begin to see the fruits of this incentivization until June and July of 2011, which I predict will cause a widespread bull market rally.

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