(Photo: James Leynse/Corbis)

The Lower East Side and The East Village
The neighborhoods south of East 14th Street have changed a whole lot since the last downturn, but they retain one thing in common with their Rent-era past: youth. The buyers here are largely middle-income first-timers, just the crowd that could find itself defaulting en masse if interest rates spike. If that happens, those kids won’t be able to sell the $1 million condos in the new towers clustered around Houston Street for the $850 per square foot they paid. Moreover, trust-funded strivers have been flooding Alphabet City’s walk-ups—and then moving out just as fast. That transience brings instability. “NYU students will graduate, newlyweds will move when they have their first child, entry-level workers will get a job in California—which means more apartments on the market at any given time,” says Newcastle Realty’s Shaun Osher. One broker quietly admits that it’s “susceptible to being hit hardest if there is a recession,” Whole Foods notwithstanding. (The lack of subway access, long rationalized by residents trudging in from Avenue C, may become a factor again.) Two saving graces: One, its buyers are uncommonly passionate about the area, and are unlikely to flee to the Upper West Side or Soho. (Even if they get rich, they just move to the Carl Fischer building or the new Charles Gwathmey tower on Cooper Square.) And two, the neighborhood is still dense with rentals. That, Osher says, could allow future buyers to wait out the market’s lull in a floor-through overlooking Tompkins Square Park. A neighborhood filled with tenants may not be ideal, but it’s better than a ghost town of FOR SALE signs.

Risk Factor: 7.5