If you were thinking about investing in the vacation-home market, it appears you have missed the boat, so to speak.

The National Association of Realtors reports that vacation-home sales rose 4.7 percent to a record 1.07 million in 2006, from 1.02 million in 2005. But NAR also reports that sales of investment homes fell sharply, down 28.9 percent to 1.65 million in 2006, from a record 2.32 million in 2005.

The big drop in investment sales cut second homes' share of the resale market to 36 percent in 2006, down from 40 percent in 2005. By contrast, primary-residence sales fell 4.1 percent to 4.82 million in 2006, from 5.02 million in 2005.

"We expected the drop in investment sales because speculators left the market in 2006, which caused investment sales to fall much faster than the primary market," said David Lereah, NAR's chief economist. "But the rise in vacation-home sales is based on strong demographic and lifestyle factors, with only modest interest in renting their properties to others."

(Coincidentally, Lereah is leaving his post this month, after seven years, to become executive vice president of Move Inc., which operates NAR's official Web site, Realtor.com, and Move.com.)

In 2006, the typical vacation-home buyer was 44, had a median household income of $102,200, and purchased property that was a median of 215 miles from his or her primary residence. About 42 percent of the vacation homes purchased last year were closer than 100 miles, and 32 percent were 500 miles away or farther.

The median age of the vacation-home buyer declined last year, from 52 in the 2005 second-home-buyer survey. Lereah said he anticipated the decline because there are now 44.7 million people in their 40s, and this larger age group will be driving the market in the coming decade.

"The demographics favor vacation-home sales [instead of sales to investors] because large numbers of consumers are in the prime buying ages, and buyers want recreational property for personal use - investment is a secondary consideration," Lereah said.

In listing their reasons for purchasing vacation homes - they could pick more than one reason - 79 percent of the 1,412 buyers who responded to the NAR survey said they wanted to use the homes for vacations or as family retreats; 34 percent wanted to diversify their investments; 28 percent planned to use the properties as primary residences in the future; 25 percent bought for the subsequent tax benefits; 22 percent bought the homes for use by family members or friends; 21 percent had extra money to spend; and 18 percent planned to rent the houses to others.

Twenty-nine percent of vacation homes were purchased in rural areas, 24 percent in resorts, 22 percent in suburbs, and 10 percent in an urban area or central city, the survey showed.

Sixty-seven percent were detached single-family homes, 21 percent condos, and 8 percent townhouses or rowhouses. Four percent fell in the "other" category.

One-quarter of vacation homes were purchased in the Northeastern United States, 13 percent in the Midwest, 38 percent in the South, and 25 percent in the West.

Investors may be down but not out in the second-home market. The survey showed that the sale price of the typical investment property in 2006 declined 18.6 percent, to $150,000, from $183,500 in 2005. By comparison, the median price of a vacation home in 2006 was $200,000, down only 2 percent from $204,100 in 2005.

"The drop in investment prices comes as no surprise, but for vacation-home prices to edge down in a record market is a bit puzzling," Lereah said.

"It may result from a large dumping of inventory on the market by speculators, especially in the condo sector, with long-term second-home buyers taking advantage of the glut and buying at negotiated discounts," he said.

This underscores that housing should always be viewed as a long-term investment, providing solid returns over time.

Part of the drop in the median investment price results from investors shifting away from pricier markets like Florida, Nevada and Arizona, and into affordable locations such as New Mexico, Idaho, Utah, Georgia, Tennessee, and the Carolinas.

On the House |

Alan J. Heavens answers questions about real estate and home improvement in an online forum at http://go.philly.com/askheavens. Join him for a live discussion at 2 p.m. Fridays on the PhillyTalk link at philly.com.