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NEW YORK CITY-Although Manhattan apartment prices dropped off slightly from the record-setting $1.28 million in second quarter 2005 to $1.14 million in the third quarter, the figure is still averaging 12% higher than a year ago, according to Brown Harris Stevens. And overall growth in the city's residential market remains strong. According to the firm's third quarter market report, the average price for a co-op was $1.04 million, 10% higher than a year ago and below the second quarter's record-setting price of $1.17 million.But the drops are not to be unexpected, since real estate deals tends to taper off in the third quarter from the second quarter, Greg Heym, chief economist for Brown Harris Stevens, tells GlobeSt.com. He points to a decrease in the luxury market for part of the reason for the decrease. Also, the numbers do not differentiate between developments, so if a high-priced projects comes on the market like the Time Warner Center the numbers would be higher, Heym adds."It doesn't mean the market is soft," Heym says, "it just means it's not drawing prices as high as it was." However, the 12% increase over last year is still significant. "Prices are still way above where they were a year ago."Interest rates are the starting point when looking for the drivers behind the strong market, he explains, because long-term interest rates have remained flat. A 30-year mortgage is below 6%, he adds. Coupled with the city's strong economy, Manhattan real estate remains a proven, sound investment, Heym says. "People will always want to own in Manhattan."Aside from the traditional hot neighborhoods in Manhattan, Heym tells GlobeSt.com that more people are looking to Upper Manhattan like Harlem and Upper Washington Heights than were just a few years ago. The Lower East Side is also an emerging neighborhood, but the biggest area to watch is the West Side, he says. "Without the stadium, people are asking what will be built there," Heym contends. "Will the No. 7 train be extended? What about the residential development?"The residential market is also picking up steam in the outer boroughs. "Brooklyn has seen tremendous growth, like Park Slope and Brooklyn Heights, but a lot of other areas are coming into their own," he says. In fact, according to BHS figures, the average price for apartments in Brooklyn Heights and Park Slope was $612,367 in the third quarter, a 35% hike from a year ago. The average per sf price of $547 for townhouses in both neighborhoods represents a 21% increase from the third quarter 2004, the company adds.Long Island City, Queens, is also beginning to show up radar screens. A few years ago, owners and developers were given incentives to convert Lower Manhattan office buildings which were considered obsolete to residential properties, explains Heym, and now the same may begin to happen with the industrial buildings in Long Island City.