Manhattan real estate

[Tweety]

I'm an early 30s New Yorker who with a wife and a baby girl, and we're looking to buy an apartment sometime between now and mid 2008. We're looking at 2 bedrooms and classic 6's on the Upper East Side, which, sadly, means we'll have to pay no less than $1.5 million, and probably more like $1.8 to $2.3 mil.

To non-New Yorkers: I know how crazy these numbers sound, but consider also that a nice 2 BR rental in a nice building in a nice neighborhood is 6-8k a month minimum.

Commuting from the suburbs is out of the question for me. I get to work every morning by 6:30am, and I frequently have evenings out in Manhattan. There's no way I'm spending 2 or 3 hours a day commuting with my work load.

$1.5 to $1.8m would be no problem. $2 mio is doable but not exactly easy. $2.05 to $2.35 (my absolute max) is possible but would be mean a major cash crunch for us in '08. We could swing it, but it would mean we'd be absolutely cash-broke other than essentials. God forbid, if we had some sort of emergency, my parents are pretty well off so we'd be ok, but other than 401k's and a few coins shoved under the mattress here and there we'd basically have no money for anything other than our mortgage, maintenance, and a spending budget consisting of pretty much bare essentials. After '08 things would get easier, as we'd have a big tax refund on interest payments and another year-end bonus for me.

So that's my situation in a nut shell. My question is really for the New Yorkers on this site familiar with the Manhattan real estate market. Where do you see prices going in the next year? Would we be better off continuing to rent? I'm personally sick of renting- we're paying $5,300 a month for a 1,200 sq ft 1 BR, and now that we have a baby we really need a 2 BR. In my building (a nice building in a good neighborhood), 2 bedrooms start at 7k a month. I just cringe at the thought of paying that much in rent. At least by buying I own something that can appreciate in value and it's not all just money into the ground. Plus I get the deduction.

Does anyone know anything about the Manhattan real estate market that I don't already know?