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Bankrate's 2008 Financial Forecast
A look ahead to 2008
Be prepared is a good motto, especially when it comes to your financial future.
An expert's view
Financial trends from Harry S. Dent

Harry S. Dent Jr., economist, money manager and author of The New York Times best-sellers "The Roaring 2000s" and "The Next Great Bubble Boom," has tried to transform economic forecasting from an art to a science.

At a glance

Using past demographic, economic, geopolitical and commodities trends, Dent and his team have nailed a number of events with startling accuracy, including the top of the bull market in 2000 and the subsequent housing bubble that burst in 2007.

He's also missed on a few, most famously when he predicted the Dow would hit 40,000 before the end of 2008. He's since backed off that view, lowering his forecast to a range of 12,000 to 15,000 based on newly emerging geopolitical and commodities trends. Dent believes his forecasting errors are more a matter of magnitude and lack of context than flat-out errors.

In an interview, Dent discussed his views and forecasts with Bankrate.com on a number of topics, ranging from the real estate market to inflation to the job and investing markets.

Do you expect the housing market to recover in 2008, or will the subprime mortgage crisis continue to drag that aspect of the economy down?

Most people in the industry expect it to continue to be weak well into next year. We believe the housing market won't come back -- people aren't moving and those who do move are buying similar houses. Therefore, the housing market won't have the same ability to bounce back that it used to. Normally in a housing cycle, the housing market would start to come back in about 2009 if interest rates were falling, but we see interest rates increasing at that point, which will exert downward pressure on housing prices.

The major pressure on housing is that the baby boomers are at the point where they aren't going to want such big houses. Instead they will want to downsize to a smaller house, maybe on a golf course, with no yard. The problem is, who will buy all those McMansions that the baby boomers have built? Not the younger generations; they will be purchasing cheaper starter homes. That is one area of the housing market that will do well, along with all types of senior housing, especially assisted living and apartment-style homes.

We see the fall in housing prices following a similar pattern to the Nasdaq off its heights. Even now, with the decline in housing prices, prices are still higher than they were five years ago. It's going to take some time for this excess to work itself out, and by the time it's finished, we'll see prices down by 40 percent to 50 percent, especially in places where prices were extremely overvalued, such as Atlanta and Dallas.

-- Posted: Dec. 10, 2007
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