Not surprisingly, the National Association of Realtors' annual Investment and Vacation Home Buyers Survey showed that homes purchased for investment or perhaps speculation slowed in 2006, but eyebrows may bolt upwards upon hearing that second home purchases set a new record -- up from 2005, what many call the end of the so-called housing bubble.

NAR says that second-home sales were mixed in 2006, with the combined total of vacation- and investment-home sales accounting for 36 percent of all existing and new residential transactions -- down from 40 percent of sales in 2005, according to the National Association of Realtors®.

It's surprising that the number isn't down even more, considering the steady drum beat playing up the softening of housing in the financial press. Investors tend to be buy and hold homebuyers who build equity over years, while speculators tend to be flippers who rely on a quickly appreciating housing market to get in with little invested and get out with a tidy gain in days or weeks.

But market chicken littles have underestimated some key factors -- that federal and local government tax subsidies such as the Tax Relief Act of 1997; record immigration, both legal and illegal, and the aging baby-boomer population at the height of its earning power each are nicely fueling home sales, even if many markets are reporting less robust sales than their peaks of 2005.

A record stock market may also influence the purchase of second homes. As people cash out stock gains, they may diversify into the real estate market. Already stories are beginning to appear in the financial press wondering if a 13,000 DOW can be sustained, or if the old axiom "sell in May, then go away" applies.

With 20 major markets declining one percent in home values in the first quarter of 2007, according to the Standard & Poor's Case/Shiller home price index, speculators don't have market momentum to rely on for gains, leaving primary, second-home and investment homebuyers picking over home selections.

Vacation-home sales rose 4.7 percent to a record 1.07 million in 2006 from 1.02 million in 2005, while investment-home sales fell sharply, down 28.9 percent to 1.65 million in 2006 from a record 2.32 million in 2005. By contrast, primary residence sales fell 4.1 percent to 4.82 million in 2006 from 5.02 million in 2005.

Twenty-two percent of all homes purchased last year were for investment, down from a 28 percent market share in 2005, while another 14 percent were vacation homes, up from a 12 percent share in 2005, the survey found.

Vacation-home buyers

NAR reports the rise in vacation-home sales is based on demographic and lifestyle factors, with "only modest interest in renting their properties to others." However, that may be changing. NAR's survey showed that 18 percent of buyers purchase vacation homes for the purpose of renting to others, up from the 13 percent reported in last year's second home buyer's survey.

"Many vacation home buyers do not initially intend to rent their second home, they choose to do so after a year or so of ownership, discovering they do not use the home as often as intended and it is more expensive than anticipated," suggests Eileen Buesing, spokesperson for HomeAway, Inc ., an online vacation rental site.

According to the survey, the typical vacation-home buyer in 2006 was 44 years old, had a median household income of $102,200, and purchased a property that was a median of 215 miles from their primary residence; 42 percent of vacation homes were closer than 100 miles and 32 percent were 500 miles or further.

"The demographics favor vacation-home sales 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.

Last year, in the 2005 second home buyer survey, NAR noted that there were 36.0 million people aged 50 to 59 in the United States, and the median age of vacation-home buyer was 52. However, Lereah said a larger group of people aged 40 to 49 in 2005 would be driving the market in the coming decade. "We see this happening now with 44.7 million people in their 40s, and the median age of vacation buyers has dropped close to the historical average, which is about 47."

In listing the reasons for purchasing a vacation home, 79 percent of buyers wanted to use the home for vacation or as a family retreat; 34 percent to diversify investments; 28 percent to use as a primary residence in the future; 25 percent for the tax benefits; 22 percent for use by a family member, friend or relative; 21 percent because they had extra money to spend and 18 percent to rent to others.

In terms of location, 29 percent of vacation homes were purchased in rural areas, 24 percent in resorts, 22 percent in a suburb and 10 percent in an urban area or central city. Sixty-seven percent were detached single-family homes, 21 percent condos, 8 percent townhouses or rowhouses, and 4 percent other.

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

Investment-home buyers

Investment-home buyers in 2005 were a median age of 39, earned an income of $90,250, and bought a home that was fairly close to their primary residence -- a median of 22 miles.

When asked about the most important reasons for their purchase of an investment home, 46 percent said to provide rental income; 43 percent to diversify investments; 23 percent for tax benefits; 18 percent to use for vacations or as a family retreat; 15 percent because they had extra money to spend; 13 percent for use by a family member, friend or relative; and 12 percent to use as a primary residence in the future.

Thirty-seven percent of investment homes are in a suburb, 22 percent a rural area, 18 percent urban or central city, and 7 percent in a resort area. Sixty-three percent are detached single-family homes, 26 percent condos, 6 percent townhouses or rowhouses, and 5 percent other.

Twenty-four percent of investment properties were purchased in the Northeast, 17 percent in the Midwest, 39 percent in the South and 20 percent in the West.

Twenty-five percent of vacation-home buyers paid cash for their property, as did 32 percent of investment buyers.

Of special note, an unusually high number of respondents in this survey report purchasing new homes: 44 percent of vacation-home buyers and 36 percent of investment-home buyers. This follows a trend noted in NAR's 2006 Profile of Home Buyers & Sellers. Historically 20 percent of homes purchased are new. In 2006, that figure rose to over 22 percent.

Seventy-eight percent of homebuyers buy an existing home, but those numbers could wane even more. A whopping 80 percent of existing homes were built before 1980. Yet, in 2005, according to the Office of Federal Housing Enterprise Oversight, 60 percent of homebuyers purchased homes that were 10 years old or less, suggesting a distinct preference by homebuyers for newer homes.

The median price of a vacation home in 2006 was $200,000, down 2.0 percent from $204,100 in 2005. The typical investment property cost $150,000 last year, down 18.3 percent from $183,500 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. This underscores that housing should always be viewed as a long-term investment, providing solid returns over time."

"Anecdotally, 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 in New Mexico, Idaho, Utah, Georgia, Tennessee and the Carolinas," Lereah said.

Vacation-home buyers plan to keep their property for a median of 10 years; 38 percent, the largest share of respondents, plan to keep their vacation home for 11 years or more. Investment buyers plan to hold their property for a median of five years, with 33 percent planning to keep for six years or more.

Even with the cautions on speculative investment, 12 percent of investment buyers plan to sell in one year or less, although some may be adding value by renovating.