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I'd say based on what you described, I would lean toward Montclair as others have said, Maplewood as well. But Montclair has the best combination of artsy, good restaurants/downtown (a few different "downtowns" actually) and one of the best, well-preserved old housing stocks you'll find anywhere - it's quite a gorgeous town. From what I can gather, the schools are good "enough", and it attracts a well-educated (and typically liberal) population from the city. But I don't actually live there, so can't comment directly on the schools.
If you had said that you wanted something a bit more urban and closer to the city than I would have suggested Jersey City or Hoboken - you can definitely afford it, but if you want "family friendly" I assumed you wanted a more classical definition of that term. Although, I have a family and live in Hoboken, and so do many others across both cities. Deals to be had here at the moment, with people bailing on urban living!
I'm not sure how Millburn came onto your radar. While a lovely town with top schools, I would probably put 30 towns ahead of that based on what you described. I've never been to Red Bank so can't comment on that, other than it's close to the beach which is a plus.
25-35 with a $1.2M budget, please let me know what I need to do!
NJ is not an artsy state, its families and business minded people. The most artsy towns are Montclair and Asbury Park (which is empty 8 months of the year and wouldnt recommend living in based on safety) and thats it for artsy. Red Bank might fit the bill on location but its a lower middle class town. Montclair might be more what youre looking for.
Many of the eatery prices don't quite reflect that IMO.
A quick note on dogs in the city, should you end up expanding your search to include it... We had two dogs while living on the upper west side. Being between two parks, there was plenty of space and numerous dog runs. Weekends before 9:00 am the leash rules are ignored and you’ll find large groups of people and their dogs hanging about in certain locations throughout the parks. Soho doesn’t really have that kind of green area, but other neighborhoods do.
However, in fairness, there are still some fairly run down residential areas in Red Bank.
Mostly on the side running along Shrewsbury Avenue, but they aren't dangerous, just working class. And because of the neighborhood, Red Bank has some darn fine Mexican restaurants and food markets, as well as a Mexican bakery.
Ridgewood & Summit have drawn Wall Street types more than artsy ones over the years. I'd second Montclair. Maplewood is a short train ride to the city and a good option for convenience, though not so artsy.
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