With Wall Street in tatters and financial institutions going under or merging left and right, real estate investors would be wise to take a closer look at the cities which are going to be hit hardest by the aftermath of the financial crisis. Which cities are most reliant on the financial industries? Knowing this can give you a great insight into how the local real estate market may react. BusinessWeek compiled a list of the top towns which are likely to be hit hardest by the financial crisis. According to BusinessWeek, the cities are ranked by percentage of people employed in finance, insurance, real estate and leasing in 2007, as estimated by Claritas (these numbers are represented below in parentheses). All cities have a population of at least 20,000 people.
- Darien, Conn. – (27.23)
- Bloomington, Ill. – (26.31)
- Hoboken, N.J. - (23.33)
- West Des Moines, Io. - (22.15)
- Garden City, N.Y. – (20.22)
- Summit, N.J. – (19.74)
- Westport, Conn. – (19.39)
- University Park, Tex. – (18.83)
- Wethersfield, Conn. – (18.73)
- Mountain Brook, Ala. – (18.66)
- Lake Forest, Ill. – (18.60)
- Urbandale, Io. – (18.52)
- Normal, Ill. – (17.28)
- West Hartford, Conn. – (16.67)
- Newport Beach, Calif. – (16.56)
- Westchase, Fla. – (16.45)
- Rockville Centre, N.Y. – (16.29)
- Naples, Fla. – (16.10)
- Ridgewood, N.J. – (15.94)
I don’t think it should be a surprise to anyone to see a heavy dose of east coast cities on this list, especially ones that were commuter cities for Wall Street people heading into Manhattan. The author of the BusinessWeek story made the case that while Manhattan is home to Wall Street, the real estate market there won’t be hurt nearly as bad as these bedroom communities. There is just not enough supply in Manhattan itself to justify such a drop, and the market is also grounded by incredible foreign interest.
Another city that investors should keep an eye on is Charlotte, N.C. The city has become one of the biggest centers of finance in the country and while it might not be struggling right now, it is certainly a possibility as we move forward. Charlotte has become something of an investor darling in the past couple years. With its reasonable prices, job growth, appreciation and stability throughout the housing downtown, many investors have entered the Charlotte market. While I’m not suggesting you necessarily jump ship, necessarily, if you own investment property there, you want to fully understand the risks. The same goes for just about every other place out there. As an investor, take some extra time and consider the job market in your area. Where do the people in your community work? Are these institutions at risk?
If layoffs start happening in bunches, as they certainly could soon, you can bet certain communities are going to be devastated. Communities that are over-reliant on shaky financial companies should be avoided. If these companies go under, or merge and relocate operations, it will lead to a drop in real estate prices and likely a substantially depleted tenant base as well.