Hardest hit will be areas whose job growth is tightly tied to construction

Business Week reports:

If the housing market turns south, where is the economic damage likely to be the greatest? Places where prices fall a lot will feel the hit, of course. But the greatest economic impact may not come where prices slide the most. Instead, the regions that see the most pain probably will be those where homebuilding has been a major source of new jobs. A decline in housing could accelerate job losses in the entire local economy, as happened in Los Angeles in the early 1990s, when aerospace layoffs and an ensuing housing slowdown led to a 10% decline in overall employment.

Housing matters so much because it has powerful spillover effects. A pair of just-completed studies by the National Association of Home Builders estimate that building 100 single-family homes generates about 350 jobs for a year, 280 of which are local.

The most vulnerable spots, according to a new analysis by BusinessWeek, include the Riverside-San Bernardino (Calif.) region -- the so-called Inland Empire east of Los Angeles -- San Diego, Phoenix, and Las Vegas. In each of these areas new jobs in construction accounted for over 20% of total payroll growth in the past year, vs. a national average of 10%. This measure counts more than just housing construction. But often the construction of other things, such as roads, schools, and malls, follows the building of houses.

You might want to read the whole thing.