From Park Avenue to Park Slope

If your net worth has taken a hit, it might be time to relocate. Where are you going to go?

By Prashant Gopal

• View Slide Show

Goldman Sachs (GS) just announced it was going to be laying off 10% of it workforce. Barclays (BCS) will be trimming at least 3,000 jobs from its U.S. operations and thousands more are expected to be dropped from Merrill Lynch (MER) as Bank of America (BAC) takes ownership of the brokerage.

As thousands of people across the world who work in the financial-services industry and related fields lose their jobs or see their incomes slashed, many of them will be forced to rethink their economic priorities. All of a sudden, things that had seemed affordable last year now become albatrosses. Does it really make sense to hang on to that expensive Park Avenue apartment when a less pricey alternative is out there? Sure, you may give up such amenities as proximity to Central Park and a status address, but, face it, it's way out of your budget these days.

So what to do? Relocate.

Make Your Money Go Further

BusinessWeek.com came up with some less pricey alternatives to luxury neighborhoods within the same metropolitan region. For example, trade in that Park Avenue classic six for a beautiful two-bedroom apartment in Park Slope, Brooklyn. Every major city in the U.S. offers a wide-range of lower-cost but extremely appealing, family-friendly neighborhoods where your money can go a longer way than in the area's ritzier districts. For example, a two-bedroom condo is selling in Boston's affluent Back Bay for $2.19 million; but a two-bedroom condo in trendy Davis Square in Somerville, just northwest of Boston, is listed for $679,000. Now that's the kind of arbitrage people can live with these days.

Even if your mortgage is manageable, living in places such as Park Avenue or Back Bay come with hidden costs. Not only are condo maintenance fees higher, but so are parking fees, restaurants, grocery stores, housecleaners, nannies, tips for the doorman, and private school tuition for the children, said Ilyce Glink, publisher of ThinkGlink.com, a real estate and personal finance Web site. Large homes also cost more to heat, cool down, and clean, she said.

"There's an added tax for living in a fancy neighborhood," said Glink, who added that it makes sense for those used to stretching to pay for the good life to start living below their means.

McMansions Are "Obsolete"

Wealthy Americans have not been hit as hard by the downturn as the middle class, largely because the subprime crisis caused more damage to less affluent communities. But the banking crisis is different, in part because it has pulled down stocks and could cause new waves of layoffs in high-paying job sectors. Of course, Bill Gates and the other billionaires and multimillionaires have a pretty thick recession cushion. The working wealthy, however, will feel some pain.

"These people are definitely going to be doing a lot of downsizing," said Jack McCabe of McCabe Research & Consulting in Deerfield Beach, Fla. "The McMansion age is obsolete. It's a past chapter in our history and we're going to get back to more conservative fundamentals in how we look at everything, including real estate."

Valerie Quemada, a Realtor with Coldwell Banker, Pinecrest North in Florida, said few buyers can afford to purchase in tony communities such as Pinecrest and Coral Gables because credit has tightened. Even those who can afford it are spooked by the financial crisis, she said.

Instead they might look at communities such as Palmetto Bay, where residents live on smaller lots than in Pine Crest but share the same high school, she said.

"We're seeing prices [in Palmetto Bay] come down," Quemada said. "Before, finding a house for less than $500,000 was impossible. Now you're seeing things come down to the $300,000s."

David Lamp, a certified financial planner with BBJS Financial Advisors in Seattle, said people aren't likely to move to cheaper neighborhoods and smaller houses unless they're forced to by a layoff or another traumatic event. That's because people are reluctant to pull children out of schools and leave friends, family, and churches. Moreover, there is the very real concern that many of them won't be able to easily sell their current home without significantly discounting the price.

Decide Before It's Too Late

Of course, for some the move may not be so dramatic—or traumatic. After all, relocating from Greenwich, Conn., to nearby Fairfield, or from Park Avenue to Park Slope, isn't the same thing as moving out of state. Friends, jobs, churches, and, in some cases, schools can still be held on to without a hitch. But the blunt fact of the matter is that for many people there may not be a choice, so in order to save money and stress, it's best to bite the bullet now and get it done.

Lamp suggests that financially strapped families look at other ways to cut costs, by holding back on vacations and car purchases and moving children out of private schools, before deciding to move away from an expensive town. But it's important to make that decision now before the economy worsens and home prices fall even more, he said.

"Figure out where you are at now because you don't want to wait until it's too late," Lamp said. "Because you could be in a position—a year and a half from now—where you're forced to sell."

Click here to see where you might be able to trade down from an expensive neighborhood to one that costs less but still offers good schools and quality of life.

Gopal writes about real estate for BusinessWeek.com in New York.