How does slumping sales impact rental prices?

The short and complicated answer is "it depends". Are sales slumping because the NY economy and employment are depressed? Then rents will probably go down. Is it fewer purchases by foreigners? Then apartments shouldn't be affected since they don't need to rent a place in the meantime. Etc. Etc.

Or with more people waiting for a correction there will be less rental inventory and prices will go up. It depends.

Rents are actually up a bit. There may be a "wait and see" among some buyers that could be increasing demand for rentals. Part of it is the usual seasonal uptick. In any event, it is sign that the overall economy here is relatively strong, which is good news.

http://www.tregny.com/manhattan-apt-rental-report.jsp

Those are Year over Year #'s, and while they do have relevance month to month trends have been down. And as to people who want to buy taking up the inventory, you can also add additional complications by pointing out that as construction is completed many people who have bought will vacate rentals to move in to the construction. Or even that many sales will be to investors who will then go out and rent the apartment to cover costs. And it is all naighborhood by neighborhood, apartment size by apartment size, so your results may vary. (What? You thought the answer would be simple in these times??)

Theoredically they should come down, but since we are at a time when fundemantals are way out of wack, I think as others have said, it's pretty uncertain. If I was forced to guess, I'd say they stay fairly stable. I'm saying that based on a very simplistic assumption that since the buy to rent ratio is very high, if prices come down the rents would have to stay the same or go up slightly to bring the ratio back in line with historic norms. but again, just a guess.

I think there was a fortune article about this where they projected the decline in prices and increase in rent to bring levels back to historic values. I did a quick search but could not find it - anyone know the article?