Prices are declining throughout New York City, but certain neighborhoods are being hit harder than others.
It is usually the case that changing and marginal neighborhoods are hit hardest by slowdowns.  Despite this entire recession being caused by those on Wall Street, this time is no different from most.

Harlem is already feeling the pinch more than any other part of the New York City real estate market, save for Morningside Heights, which dropped 30%.  Residential property values in Harlem and East Harlem combined are down a full 20% from last year’s numbers.

Midtown East and Turtle Bay were runners up.  Values there dropped an average of 18.6%.  Hell’s Kitchen last quarter lost 8% of its real estate value from last year.

Median co-op prices in Lincoln square, meanwhile, rose 18.6%.  Similarly, the rich don’t seem too effected by the downturn caused by the financial industry, with Fifth Avenue and Park Avenue seeing average rises in residential property values of 35% from last year’s third quarter.

Outside these areas, losses were more moderate.  The Lower East Side and the Village each lost 5.5% of their residential real estate value.

No other neighborhoods saw declines greater than 5%.  Some areas even saw significant price increases.  Battery City Park, for instance, saw median prices rise a full 6.5%.  Inwood saw the single greatest increase, despite a sharp decline in the number of sales.  Prices there shot up 17.1%.  Most of these increases in value came from new high-end condos finally coming onto the market.  Greenwich Village saw a 3.9% increase.

Prices dropped in SoHo and TriBeCa, but sales volume remained quite strong.  The Upper West Side, on the other hand, saw a drop of over 30% in its sales volume.  In total, sales volume dropped 24% in Manhattan.

What’s scary, though, is that next quarter is widely expected to be even worse than this quarter.  The real damage to the economy has been done by consumer reaction to the financial crisis.  Many potential buyers have put their purchases on hold to see what happens with the macroeconomy, thus driving prices down even further.

Much of this correction will be, in the long run, good for the Manhattan real estate market.  Many experts have long argued that prices in the city were heavily inflated in comparison to similar urban environments.

One of the most striking features of the new market dynamics is the shift in demand:  Buyers have refocused their energies on more moderately priced units.  While the highest end of the luxury market is still the healthiest market segment, many buyers who had been looking at comparatively low-end luxury are now moving into more reasonably-prices high end standard units.

Similarly, the average size of an apartment sold in Harlem dropped roughly 300 square feet from the last quarter.

It is clear that owners that reacted quickly to the downturn have not seen much slack in demand for units.  Not all owners, however, have been so nimble.  Much of the expected price drop in the fourth quarter, for instance, will be from landlords who finally get it that the real estate market in NYC is once again behaving like a normal market, not the fantastical profit machine it’s been for most of the past decade.

The effect of the election on the market will be one of the most fascinating questions in the industry that will be answered over the course of the next several weeks.

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