U.S. Economic Crisis May Have Hit Bottom

Aug. 20, 2008 — -- "Good Morning America" financial contributor Mellody Hobson stopped by the show today to give what she believes to be America's financial forecast. Here are some of her predictions.

Price Increases?

There is absolutely no way to predict with certainty where prices will go, but it is likely we are going to start to feel dramatic price increases this fall and winter. The latest reported jump in wholesale prices was the most significant increase we have seen since 1981 and the third month in a row we have seen prices rise. As such, the prices you will pay on everything from beef to milk to cola will all be higher. In fact, the price of beef rose 7.5 percent last month -- its largest increase in five years.

If there is a silver lining here, it is the fact that the Consumer Price Index and Producer Price Index results were measured before oil started to take its precipitous decline, so last month could be the peak and we may start to see a decline in prices.

Oil is down about 22 percent since it reached $145 a barrel in July, which is obviously good news.

The high price of oil has a major impact on businesses that have suffered from surging production and delivery costs and are then forced to pass on the increases to consumers. Conventional thinking is that the worst is behind us with regards to the price of oil, and we are going to start to see the price of oil return to Earth.

Mortgage Mess and Credit Crunch

In a speech Tuesday, the former chief economist of the International Monetary Fund suggested that the United States is not yet out of the woods and that a major U.S. bank could fail in the next couple of months.

I actually am cautiously optimistic that we are close to the bottom. I think the subprime mortgage mess and credit crunch is finally coming to an end.

That is not to say there can't be an unexpected event that could shock the market, but I do believe we are through the worst.

Although it sounds cliche, I think it rings true in this case that it is always darkest before dawn.

Fannie Mae, Freddie Mac and Housing

There is no doubt the housing market is still on shaky footing.

Supply is still greater than demand for housing as there is a 10-month supply of homes on the market. When the supply of housing is at six months or lower, we should start to see prices increase and begin to feel a rebound in the housing sector.

If you are on the sidelines and have saved enough for a 20 percent down payment, now may be the best time in decades to buy a home. It is truly a buyer's market and buyers are in the driver's seat.

As for Freddie Mac and Fannie Mae, their structure is likely going to change. I think we will see the U.S. Treasury Department do everything in its power to make sure Freddie and Fannie stay afloat because they are the lifeline for the mortgage market and without them, homeownership would be extraordinarily difficult if not impossible.