Purchases of houses for investment purposes continued to be among the strongest segments of the real estate market last year -- and accounted for more than one out of five of all home sales in 2008.

That's a key finding of the latest annual study on second homes and investment purchases conducted by the National Association of Realtors.

The investor market share last year was 21 percent, the same as the year before, but down several points from the height of the housing boom in 2005 when it hit an all-time record of 28 percent.

Second homes and vacation property purchases, on the other hand, dropped last year to just 9 percent of the total market, down from 14 percent in 2006 and 12 percent in 2007.

What sort of properties were investors buying for rentals? Two out of three were detached single family units last year, while 22 percent were condos or duplexes. Eight percent were attached townhouses or rowhouses.

Investors kept their purchases pretty close to their home base -- following the long-standing rule -- “invest where you know the local market best.” Fifty four percent of all investment houses were located within 20 miles of the investor's own home, and roughly two out of three were within 50 miles.

Investors also opted for considerably lower priced properties last year. The median sale price of a rental unit in 2008 was $108,000, according to the Realtors study. That compares with a $196,000 median for primary residences and $150,000 for second home and vacation properties.

During the boom years, by contrast, investors tended to buy much higher priced units, a median of $189.000 in 2004 compared with a median of $204,000 for vacation units.

Given last year's credit crunch, more investors apparently avoided banks and mortgages altogether. Forty two percent paid all cash for their purchases, versus just 15 percent of buyers of primary residences and 31 percent of vacation home buyers.

Far larger numbers of investors bought their units in distress situations -- one out of six was a foreclosure or trustees sale -- which is no surprise given the huge numbers of R-E-O and auctions that dominated many local markets.

So what did the typical investor look like last year? They tend to be older -- with a median age of 47 years compared with 37 for primary residence buyers.

But interestingly, they were not wealthier than other buyers. In fact, second and vacation home buyers had higher median household incomes -- $97,000 - compared with $85,000 for investors.

Published: April 3, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.