The quarterly declines should continue, but how steep the drop is remains to be seen, says Jim Gricar, executive vice president and managing director of Brown Harris Stevens here. "New York City has a very different kind of real estate market than the rest of the country," he says. "Obviously things began to soften in 2006 through 2007 in other places, and it was the opposite here. We had steady increases until the second quarter of 2008. Now, if you look at the macro picture, the trend is looking like the market will be down, both in terms of volume and earnings over last year. This year will be down anywhere from 5% to 12% from 2007. And if you look back one more year, it's considerably higher than 2006. So what you're seeing right now is an adjustment back to very healthy real estate markets without quite so much as the froth on top."

The woes on Wall Street and the greater financial markets are only beginning to hit the data on Manhattan's residential market, which typically lags the greater market, says Gricar. For one, contracts are taking longer to sign, so closings reported in recent figures represent deals entered as far back as a year ago.

Buyers are beginning to cut back what they're willing to pay or reconsider purchases altogether. Necessity buyers, such as households who need bigger units to accommodate a growing family, remain active. But the discretionary buyers in the luxury market appear to be holding tight on making any decisions. Gricar also notes a flight to stability and quality. "When the market is climbing and prices in prime neighborhoods are going through the roof, emerging neighborhoods can be quite attractive because they offer a similar size property for less money," he explains. "Now, conversely, those prime areas are going to get much of the focus from buyers because prices will come down a bit and people will be able to afford their first-choice neighborhoods. Because of that, the emerging neighborhoods will be hit a little harder by the downturn."