The drop in home sales following the expiration of the homebuyer tax credit is probably over and sales may actually rise in the August to October period.

That’s the view of PMI Mortgage Insurance Company’s economic analysts in their latest Housing and Mortgage Market Review.

After troughing in the first half of July, mortgage purchase applications have edged up slightly and NAR’S Pending Home Sales index showed a modest rise of 5.2 percent for August. “This suggests that home sales for August, September, and even October should show some modest gains. Beyond that, the underlying determinants of housing demand will have to strengthen in order for home sales to rise appreciably.

“Our projection of faster economic growth for 2011 should lead to a pickup in job gains and stronger household formations (since they tend to be pro-cyclical). Low expectations of future capital gains on housing investments will likely reduce this component of housing demand for some time to come. Taken together, these underlying factors of housing activity suggest that 2011 will show a stronger, but still historically modest, rise in home sales. And, when combined with the near-term leading indicators, home sales have probably reached their trough for this cycle.”

PMI forecasts sales to reach an annualized rate of 5.6 million in the third quarter, and 5.75 million in the fourth.

PMI also sees no second dip for the overall economy. “While economic growth continues to be tepid, recent data suggest that fears of a second recession are likely overblown. Data over the past month from the Institute for Supply Management (ISM) on manufacturing and the Bureau of Labor Statistics on the employment picture were both stronger than the market anticipated, and suggest further moderate growth rather than a downturn. The downwardly revised 1.6 percent annualized growth rate of real GDP in 2010Q2 may prove to be the low point for this recovery, although this slow pace of growth makes the economy more susceptible to shocks that could knock it back into recession. In the absence of an unforeseen shock to the economy, however, the current soft patch may persist in the near-term, but growth is still expected to accelerate in 2011 – especially in the second half of the year.”

PMI’s outlook is one of the rosiest issued in the wake of the record 27 percent fall in July existing home sales, at a seasonally adjusted annual rate of 3.83 million units. Back in May, Goldman Sachs lowered expectations by asserting the first half recovery in values had stalled. U.S. housing values will fall 3% in the coming year, with the heaviest blows dealt to Las Vegas, Portland, Ore. and Seattle, Goldman predicted. With an eye toward high home-vacancy rates or rising mortgage delinquencies in these cities, the bankers projected values there would drop 4 percent to 12 percent in the coming 12 months.

CNBC’s Diana Olick announced yesterday that the housing double dip is already upon us. “Now home buyer confidence is back in the dumps, which is clear from another report out today showing that for the 3rd straight month the percentage of home sellers on the market who have slashed their asking prices at least once has gone up. Twenty-six percent of sellers on the market in August, according to Trulia.com, had lowered their expectations, and hence their prices. Sellers on the market today have cut $29 billion off their collective home equity,” she said.

The August existing home sales report will certainly determine which way the wind is blowing. It’s due out a week from today, September 23.