Edward L. Glaeser is an economist at Harvard.

Wall Street is just about to finish the worst year since 1931. American housing markets are finishing their worst year in recorded history. New York’s economy is highly dependent on Wall Street; about 40 percent of Manhattan’s total payroll was in finance and insurance in 2006. These three facts should have created the mother of all price crashes in New York City real estate.

Yet New York’s housing prices are doing remarkably well relative to elsewhere in America.

Today’s Case-Shiller housing price figures indicate that New York City’s prices dropped 7.5 percent in the last year, while prices in Los Angeles declined 27.9 percent. Nationwide prices dropped 18 percent. New York is the only major metropolitan area with prices that are still 90 percent above prices in January 2000. According to National Association of Realtors data, New York is the only city in the continental United States, outside of San Francisco Bay, where median sales prices remain north of $500,000.

Despite Wall Street’s suffering, the New York area’s unemployment rate, 5.6 percent in the latest figures, is lower than that in many other major cities. The comparable unemployment rate for Los Angeles is 8.2 percent. The comparable number for Chicago is 6.4 percent.

This is not the first time that New York has weathered a downturn well. Between 1950 and 2000, all but 2 of the 10 largest American cities lost 20 percent or more of their populations. America’s older, colder cities were buffeted badly by an exodus of manufacturing jobs, suburbanization and the move to the Sun Belt. Some cities — Cleveland, Detroit and St. Louis — shrank to one-half or less of their former size. New York and Los Angeles were the two cities that grew. While Los Angeles had everything going for it — cars, sunshine, movie stars — New York, then as now, seemed to have everything going against it.

Every older city has survived a number of recessions. Boston has been around for almost 400 years despite having few natural advantages except cranberry bogs and a decent harbor. Over and over again, economic shocks challenged Boston’s survival. Time and time again, smart people learning from each other in a dense city have come up with new ways to thrive.

For the city’s first three centuries, New York thrived as America’s most important port. Nature endowed Manhattan with a great natural harbor, a deep long river that cut into a fertile hinterland and a central location on the Eastern seaboard. These gifts made New York that hub of trans-Atlantic commerce in the 19th century. New York’s major industries grew up around the port, such as sugar refining, printing and publishing, and the garment industry.

Over the 20th century, the advantages that came from the ports and railroads that had created older cities disappeared. Suburbanization, globalization and the exodus of urban manufacturing hit all of America’s older cities. When other cities, including Boston, experienced significant population declines from 1950 to 1970, New York City still grew, albeit modestly. Only during the 1970s, the years of my Manhattan youth, did the city a suffer major population decline.

However, New York managed to come roaring back, while other cities have just continued to fall. The secret of New York’s post-1970 reinvention was that smart people, who knew each other and learned from each, innovated in ways that made billions in financial services. The same density that once served to get hogsheads onto clipper ships served to spread ideas.

What does this mean for the future?

New York still has an amazing concentration of talent. That talent is more effective because all those smart people are connected because of the city’s extreme population density levels. Historically, human capital — the education and skills of a work force — predicts which cities are able to reinvent themselves and which ones are not. Those people who are continuing to pay high prices for Manhattan real estate are implicitly betting that New York’s human capital will continue to come up with new ways of reinventing the city.

I won’t be surprised if Manhattan prices do drop in the next few years, but I also strongly believe that the future of New York City continues to be bright. Homo sapiens are a social species; almost all of what we know we learn from each other. Dense cities, like New York, succeed when they take advantage of this fundamental aspect of our humanity. They thrive by enabling us to connect with each other, which then promotes learning and innovation. The current downturn will only increase the returns to being smart, and you get smart by hanging around smart people. As long as New York continues to attract and connect those people, the city will continue to thrive.