"Some of the issues that were so pervasive and widespread in other parts of the country are now coming here in a milder form," Flaherty said. "We're behind in the sense that other states were hit hard, they bled a lot and it looks like they're getting better."

UBS Stays

There are also some positives. Connecticut reached a deal last year with Zurich-based UBS to keep at least 2,000 jobs in the state in exchange for a $20 million "forgivable" loan. The lender, which had 3,500 people in Connecticut, announced plans last year to cut the same number of jobs globally. It had considered moving U.S. investment-bank staff to Manhattan, a person with knowledge of the matter said at the time.

Bridgewater Associates, the world's biggest hedge fund with $77.6 billion of those assets under management as of January, said this month that it plans to build a $750 million headquarters in Stamford, financed partially with state aid. The company agreed to create as many as 1,000 "high-level" jobs within 10 years, while retaining its existing workforce of about 1,225 people now based in nearby Westport. Cigna Corp. and NBC Sports Group are among the other firms that are taking advantage of a state tax-incentive program by agreeing to add hundreds of jobs.

Foreclosure Backlog

Connecticut's foreclosure backlog poses another challenge to a recovery, especially in poorer areas of the state. It now takes 656 days for a bank to seize a home, the longest after New York, New Jersey and Florida, according to RealtyTrac Inc. Connecticut's foreclosure filings increased 139 percent in July from a year earlier to 1,544 properties. The jump was second only to Vermont.

Like neighboring New York and New Jersey, Connecticut requires banks to get a judge's approval to seize a home, a process that has clogged the courts. The state's supply of properties that are at least 90 days delinquent or in some stage of foreclosure -- known as shadow inventory -- increased more than 6 percent from a year ago while most states are seeing that overhang diminish, according to the Mortgage Bankers Association.

Bank Settlement

A $25 billion settlement in February with top banks over allegations that they seized homes without proper documentation may have opened the way to more listings of lower-cost distressed properties.

In retirement destinations such as Florida and Arizona, where prices fell much further than in Connecticut, investors have jumped in to buy discounted foreclosures.

"Things are getting worse in Connecticut," said Daren Blomquist, vice president at RealtyTrac. "As additional foreclosures come online, it could have chilling influence on home prices in Connecticut. If there's not a lot of demand for houses falling into foreclosure, that's going to hamper any housing recovery."

The reasons for Connecticut's housing weakness aren't just local. Homebuyers are holding back because of economic crises brewing thousands of miles away, said Nick Perna, economic advisor to Waterbury, Connecticut-based Webster Bank and lecturer in Economics at Yale University.