The impact of RTC dispositions on local housing and real estate markets

Abstract

This article examines the critical question of whether disposition activity of the Resolution Trust Corporation (RTC) will disrupt local real estate markets by driving values down and encouraging additional defaults. The question is approached by identifying key characteristics of local economies and real estate markets that could be associated with adverse market responses and then examining 12 individual metropolitan areas in this context. A survey of metropolitan areas with high RTC concentrations finds varying potential for adverse impact. Detailed case studies in three metropolitan areas—Dallas, Denver, and Oklahoma City—find the potential to vary widely by property type, quality level, and geographic location. By and large, commercial markets are expected to be less affected because of (1) the already depressed condition of most markets, (2) market segmentation that would insulate investment grade submarkets, (3) capitalization of expectations about disposition, and (4) political constraints on the rate of RTC activity. However, the geographic concentration of inventory that is combined with potential tipping dynamics associated with neighborhood change could render certain affordable housing markets vulnerable to adverse market responses. Policy recommendations to mitigate such impacts are suggested.