Towns that could be hit hardest by crisis

Jeremy Nowak, president of The Reinvestment Fund, a nonprofit group in Philadelphia that operates PolicyMap.com, and a board member of the Philadelphia Federal Reserve, said the towns on the list aren't necessarily in trouble yet. Much depends on the health of the local employers and the mix of businesses. Not all banks, for example, are doing badly, he said. And the insurance industry is, so far, relatively healthy, despite the troubles besieging industry giant American Insurance Group.

"These are places to watch," Nowak said. "This will be the starting point for investigation, and not the answer."

Hitting Connecticut commuters
John Tirinzonie, Connecticut's state labor economist, wasn't surprised to see that Darien topped the list. The Wall Street crisis puts stress on commuters in affluent Fairfield County, which includes Darien, Westport, New Canaan, Stamford, and Greenwich (home of former Lehman CEO Dick Fuld), he said. It remains unclear how the merger of Bank of America and Merrill Lynch will impact the thousands of employees who work at both banks in Hartford.

What seems clear is that the financial turmoil is already hurting the local economy. Connecticut's unemployment rate jumped from 5.8 percent in July to 6.5 percent in August, he said.

"The problem is when you start to have people making good money who are commuting to New York and lose their job, they're going to be in a very competitive market now with people in the same position. If they're able to get a job … it may not be the same level and income they're used to. And that affects the state in terms of tax revenue."

New Jersey: Benefit through relocations?
In New Jersey, home prices in the wealthy towns of Madison, Summit, Chatham, and Millburn, which have direct train service to midtown Manhattan, had been holding up better than much of the state, said Rutgers University economist James Hughes. But that could now start to change.

One possible benefit for New Jersey: Manhattan companies that are coming to the end of their leases might consider moving to New Jersey where office rents are much lower, he said.

"You're going to see a smaller Wall Street," Hughes said. "Salaries will be less generous, bonus payments will be less. It's going to ripple through the residential market."

Manhattan real estate: Some trouble spots
The New York suburbs in Westchester, New Jersey, Long Island, and Connecticut could get hit harder than Manhattan itself, which has a relatively tight supply of housing. Jonathan Miller, chief executive of real estate appraisal firm Miller Samuel Inc. said the market for Manhattan units selling for more than $8 million is less vulnerable because many of the buyers come from overseas and are wealthy enough to survive an economic downturn, he said. Miller said the market for homes of $3 million to $8 million could get hurt more because many of the buyers work on Wall Street.

"The abruptness of all that has happened has caused many people to step back and wait and see whatever bad news will come along next," Miller said.

Steve Spinola, president of the Real Estate Board of New York, said he expects prices to remain flat. He also said that many Wall Street employees who were laid off will be hired by new boutique investment banks that might be formed by executives from the former investment houses, and plenty of talent will be needed to implement the $700 billion bailout plan.

The Manhattan co-op market is tight. Spinola said the condo market might have more supply problems because builders, rushing to meet a June 30 tax abatement deadline, filed for about 17,000 new construction permits, he said.

"In two and a half years when these projects are done and open, will the market be back to buy them?," Spinola said. "I think the answer is 'yes.'"

MORE FROM BUSINESSWEEK

BusinessWeek Section Front

A Wrong Turn on the Way to Recovery The Reselling of General Motors Managing the Wireless Data Deluge Sonos' Splendid ZonePlayer S5 Financial Regulation: A Little Common Sense, Please European Stocks: Experts See More Upside in 2010 Chris Liddell's Style May Presage Ascent to GM Helm Stocks on the Move: Aetna, E*Trade, Intel, MetroPCS AT&T Mulls Plans to Deal with iPhone Data Demand Google Bids for Yelp's Online Local Ad Communities BusinessWeek Section Front