436 



THE REAL ESTATE MARKET 



Please be aware of the impact that the W1rth Senate Bill No. 346 may have on 

 our local economy. I speak especially with the regard of real estate. We have 

 seen real estate declines of the following approximate magnitude for the 

 various communities listed below: 



Community Impact on Real Estat e 



Skagway 25 - 35% decline 



Haines 25% +/- decline and 

 over iO years of 

 economic stagnation 



Cause 



Closure of the railroad in 1982. 



Closure of 2 sawmills in the mid 

 1970's and termination of Alaska 

 Pipeline construction In the late 

 1970's 



Juneau 



20 - 70% decline, 

 depending on property 

 type. 



1985 - 1988 less than 10% cutback 

 in employment of State Government 

 and fear of future Job losses. 

 Market over built. 



Ketchikan 20 - 30% decline in 



property, depending on 

 type. 



1984 to 1986 closure of Ketchikan 

 Spruce Mill, property, depending on 

 6 month closure of Ketchikan Pulp 

 Mill, loss of Coast Guard cutter 

 home port. 



The exact effect that the closure of the mill or severed interruption of raw 

 material to the mill would cause to the housing and general real estate market 

 in Sitka Is uncertain. Based on our observations of what happens in other 

 communities it appears that a significant number of people would be put out of 

 work. Household Incomes would drop. As budgets tighten, mortgage payments 

 would be made late. After savings dried up and unemployment compensation runs 

 out, or wage earners have to relocate, many homes would go on the market. 



At this point the market perception usually goes like this. Buyers are 

 cautious, if they buy it will only be the best property at the lowest price, it 

 will offset the market risk they perceive. Sellers in increasing numbers would 

 put their homes on the market out of necessity or in fear of losing their job 

 or losing equity as the market get worse. 



When sales do occur, the best homes sell at the lowest prices, driving prices 

 down. Sellers who have equity or value above their mortgage will sell at a 

 loss if they need to leave town or get out of a high mortgage payment. 



As competition to sell Increases, prices will be driven down further. 

 Eventually, prices will fall below the level of many of people's mortgage 

 amounts. The owners who must sell 1n this position will have the following 

 options: 



A. Default with the possibility of being sued. 



B. File personal bankruptcy. 



C. Rent house and subsidize payments if possible. 



Sitka has had an active real estate market over the past 8 to 10 years. I 

 would estimate/guess that approximately 40% of our housing inventory has been 

 purchased or refinanced over this time. The most popular loan programs allow 

 for 5-10% down payment with some programs allowing zero down. This means that 

 most people who have purchased, refinanced or taken a second mortgage out on 

 their homes in the last 8 to 10 years have 0-20% equity in their homes. 



HORAN, CORAK AND CO. 



