Data from the association's biennial survey, Profile of Home Buyers and Sellers, show there were 359,000 single-family second-home sales in 2001, down 4.8 percent from a record 377,000 sales in 1999. Although no data is available for 2000 and other even years when surveys were not taken, 2001 was the second-highest sales total since the series began in 1989. The 2002 profile will be published in mid-June.

National Association of Realtors Immediate Past President Martin Edwards Jr. said the sales data could be deceiving. "Make no mistake—the second-home market is extremely hot and will be for some time to come," he said. "A big jump in second-home prices speaks to that, with the typical second home now costing more than a primary residence."

According to the survey, the median price of a second home in 2001 (both new and existing) was $162,000, which is 26.8 percent higher than the 1999 median price of $127,800.

David Lereah, the association's chief economist, said several factors account for the modest sales decline. "The mild recession in 2001 had a dampening effect on discretionary spending, resulting in a slight pullback from the second-home market," he said. "Buyer interest remained strong, but some people decided to wait it out on the sidelines to see what would happen with the overall economy. Market specialists tell us that by the end of the year, the second-home market turned around and sales began to rise."

A big consideration is that a large, pent-up demand for second homes was released following tax-law changes effective in 1997, which allow most sellers to exclude up to $500,000 in capital gains from taxation. "This freed buyers wishing to trade down to a smaller primary residence and also use some of their equity to purchase a second home, sometimes as a trial retirement home," Lereah said. "In hindsight, a surge of sales in 1999 was no surprise, given the fact that baby boomers were entering the peak years during which people typically buy a second home at the same time that many investors were looking to diversify portfolio assets."

Another factor in the market performance is a lack of inventory. "Nationally, we've had tight housing inventories generally. Professionals specializing in recreational property say there aren't enough vacation homes to meet demand in many areas, causing prices to rise sharply," Lereah said. "The availability of vacation homes is reported to be especially tight in coastal markets."

Edwards said prices vary widely, depending on type and location, with some cabins selling for under $60,000, while beach houses can easily cost well over a million dollars. While the survey doesn't provide a geographic breakdown, anecdotal reports from practitioners specializing in recreational property offer some interesting examples, such as oceanfront property in the mid-Atlantic region doubling in value between 1997 and 2001. "The strong second-home price increase over the last two years reflects exceptionally strong demand in the more desirable locations. This has reversed the traditional view of vacation homes as being more difficult to sell than a primary residence," Edwards said.

The association's data shows the median age of second-home buyers in 2001 was 46, and the median income was $77,700. Seventy-two percent of buyers were married couples, 10 percent were single male, 10 percent were single female and 6 percent were unmarried couples. "In other words, the typical second-home buyer is a middle-class baby boomer," Edwards said.

Although many media reports on the second-home market tend to focus on luxury properties, the typical recreational property tends to be more modest. "Many vacation homes have the same kind of amenities people enjoy in their primary residence, but beach houses, cottages, cabins and mountain chalets are much more common than elaborate estates," Edwards said.

The association reports that 5.5 percent of all homes sold in 2001 were second homes; it estimates half of those are for recreational use and half are held as rental investment property.

Vacation homes can be found in every state and region, with the most popular locations by the water or in the mountains. Not surprisingly, the Census Bureau reports the states with the largest number of recreational homes also happen to have large populations: Florida, California, Texas and Michigan. However, the highest percentage of vacation homes can be found in Maine, Vermont, New Hampshire, Alaska, Delaware, Florida, Arizona, Wisconsin, Montana and Hawaii.

Lereah said financing of recreational property used to be more limited, with the best loan terms available from local or regional lenders familiar with the area where the property is located. Also, interest rates tended to be higher and loan terms shorter. "However, more national lenders are willing to finance recreational property now with more competitive terms, some comparable to loans on primary residences," he said.

Although name-destination resorts receive a lot of attention, many people prefer quiet, less well-known and more affordable properties fairly close to home. Most homeowners prefer their vacation homes to be within a relatively short drive (less than a day). According to the U.S. Census Bureau, half of all vacation homes are located in rural areas; only 10 percent are located in central cities.

Edwards said recreational property remains largely a lifestyle choice. "Some owners are able to offset costs by renting their property for part of the year, but, in most cases, that will cover only a portion of the monthly carrying costs," he said. "Unless the property is highly desirable and well-located in a popular destination resort, buyers shouldn't count on rental income to help them pay for their property."

"People interested in buying a vacation home should be familiar with the area, its amenities and resources, as well as travel time and other long-term considerations. A good way to do that is to rent in the area and get to know it firsthand," Edwards said.