Prof: Double-Dip Recession Likely

There is a 60% chance that the economy will slide back into recession this year and a 40% chance of a “slow recovery,” according to Ken Rosen, a professor at the University of California, Berkeley.Speaking at the Commercial Mortgage Securities Association’s CMBS Investors Conference in Miami, Mr. Rosen said the key to real estate demand is job creation and that another round of job cuts could cause the U.S. economy to slip back into recession. Even in case of a recovery, though, Mr. Rosen said he believes the unemployment rate will edge up to 6.5% this year. A war in Iraq will also affect the economy, he noted. “If things go well in Iraq, oil prices could go down, and this is an indicator that things will go well [with the U.S. economy] in the second half,” Mr. Rosen said. The bad news for the mortgage industry is that as the economy recovers, today’s very low interest rates will not be sustained. Mr. Rosen said he expects the interest rate on the 10-year Treasury to rise to 5.5%-6.0% under this scenario, or to fall to 3.0%-3.5% if the economy does not recover. Mr. Rosen said he does not believe the Bush administration proposal to eliminate the taxation of dividends will affect real estate investment trusts, since most investors invest in REITs through pension funds.