The Economy: how will we fare?

When the crisis on Wall Street accelerated late this summer with the federal bailout of Fannie Mae and Freddie Mac, the talk locally turned to how and to what extent our corner of the world would be affected. Now the outlook is even gloomier after the federal takeover of insurance giant AIG, the firesales of Merrill Lynch and Bear Stearns, and the collapse of Lehman Brothers.
   
On the eve of the first presidential debate, the federal government quietly seized the assets of the largest savings and loan in the country, Washington Mutual, and promptly auctioned off most of the company to J.P. Morgan Chase. This came on the heels of the voluntary transition of the two largest remaining investment banks, Morgan Stanley and Goldman Sachs, to holding companies subject to far tighter regulations. And after much wrangling, Congress approved a $700 billion plan to use more taxpayer funds to purchase mortgage-backed securities in an effort to stabilize credit markets. If ever there was an appropriate time for the use of the word “crisis,� this is it.
    Slowly but surely, a picture is emerging of a slower economy in our area, marked by reduced discretionary spending and exacerbated by skyrocketing gasoline and heating oil prices. When people have less to spend (or when they expect to have less to spend not too far down the road), they increasingly put off purchases they can do without.
    Nowhere is that reality more apparent than in the local real estate market, where brokers report traffic is off by as much as 60 percent. The bulk of sales in the Northwest Corner is generated by wealthy New Yorkers looking for second homes. So brokers here are largely dependent on Wall Street money — either in the form of high salaries or year-end bonuses. When executives see that money shrink or evaporate, they are bound to put off unnecessary purchases. And there is no purchase more discretionary than a vacation home in the country.
    The parking lots of our restaurants and stores don’t seem quite as full as they were a year ago. Some building contractors, especially those who depend on work from wealthy part-time residents, are struggling to stay busy. But even before the Wall Street meltdown, astronomical fuel prices were forcing people to reconsider expensive vacations or long drives to see friends and loved ones. If current trends continue, the holiday shopping season could be a sad affair marked by empty stores and a Santa bearing fewer gifts.
    It’s possible that the area’s many private schools will start feeling the pinch to a far greater extent than they already have. As endowment and investment income shrinks and heating and utility costs continue to soar, tuitions will face upward pressure at a time when less disposable income may force even well-to-do families back into the public schools. The private schools could then be forced to admit students who are ill-suited for their programs or swallow hard and reduce their enrollments. The latter option could mean a loss of jobs and less spending in the local economy.
    There is hope for the Northwest Corner. This is still a beautiful area scarcely two hours from Manhattan. We could become, in the words of real estate broker Peter Klemm of Klemm Real Estate a “safe havenâ€� for families with the means to escape the New York metropolitan area and effect “a lifestyle change.â€� A similar migration occurred after the terrorist attacks on 9/11.
    However, if the Northwest Corner real estate market gets even softer, there will be bargains to be found — not only in the luxury market but in the low- to-mid-range properties. A three-bedroom cape on a quarter of an acre in a downtown neighborhood that went for $400,000 two years ago might be had for closer to $200,000 next year. That will be bad news for sellers and real estate brokers but good news for working people looking for affordable housing.
    The fragile and uncertain state of the national economy is undeniable. It’s bound to have adverse effects on the Northwest Corner. But with the right combination of ingenuity and luck, we could weather the storm just fine.