NEW YORK (Bloomberg) — Manhattan apartment prices dropped for the first time since 2002 in the second quarter as the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos. caught up to property owners in the nation's most expensive urban market.

The median price fell 18.5 percent from a year earlier to $835,700, New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said yesterday. The number of sales plunged by half, the most since Miller Samuel began keeping data in 1989.

"The standstill that existed after Lehman Brothers has been broken, and it was the sellers that cried uncle," Pamela Liebman, chief executive officer of New York-based property broker the Corcoran Group, said in an interview.

Values are falling broadly in Manhattan for the first time in the almost four-year US housing recession, with declines now seen in co-operatives and condominiums of every size and price. Private-sector employment in the city dropped by 91,200 jobs, or 2.8 percent, in the 12 months through May as Wall Street losses and asset writedowns topped $1.4 trillion. The price of studio apartments declined 16 percent from a year ago to a median of $405,000, according to Miller Samuel. One-bedrooms dropped 17 percent to $650,000 and two-bedrooms fell 23 percent to $1.27 million. Three-bedroom units fell 37 percent to $2.35 million and four-bedrooms plummeted 47 percent to a median of $3.92 million.

The Miller Samuel-Prudential data reflect for the first time what sellers have known for at least six months: The way to lure a buyer in the current market is to cut your price.

About 32 percent of second-quarter listings included discounts from the original asking price, according to StreetEasy.com, a website that gathers Manhattan property listings from brokers. The deepest concessions were on Central Park South and in the Financial District, where list prices were pared by an average of 10 percent.

"The sellers who want to sell are reducing their prices," Liebman said. "The ones that aren't, are either sitting on them overpriced or waiting for another day."

James Rosenthal didn't want to wait.

Rosenthal and his Upper West Side neighbor on Riverside Drive near 77th Street put their adjacent apartments up for sale in February 2008 for $6 million, hoping to lure a buyer that wanted to maximize the 3,800-square feet of combined space.

Then Bear Stearns collapsed and the neighbours cut their price to $5.75 million, then to $4.96 million. The properties sold for $3.6 million, a 40 percent discount from the original asking price, on April 20, said Rosenthal, who is a senior vice-president at New York real estate brokerage Brown Harris Stevens as well as a recent seller. "As the seller you don't control the market," Rosenthal said. "The buyers control the market."

On the Upper East Side, the median price of existing co-ops fell 20 percent to $758,000, while condominiums in that neighborhood declined four percent to $1.22 million, according to Corcoran. On the Upper West Side, co-op re-sales slid 8.5 percent to a median of $700,000 and condos were down 22 percent to $893,000.

South of 34th Street median prices for condos and co-ops combined dropped 16 percent to a median price of $880,000, according to StreetEasy.

The two most-discounted apartments in the second quarter were penthouses at Palazzo Chupi, a rose-colored five-unit condominium building of balconies and terraces developed by film director Julian Schnabel on 11th Street in the West Village. Listings for the triplex and duplex penthouses were discounted by 32 percent to $14.95 million and $12.95 million respectively, according to StreetEasy.