Second home sales have taken a direct hit in the current real estate market slowdown, according the National Association of Realtors’ (NAR) annual survey of investment and vacation home buyers.

The realtors group, always eager to put a sunny spin on the real estate market, was frank in its assessment of sales of second homes, which include both vacation homes and investment properties. “Second homes are discretionary purchases and there is a natural tendency to pull back from big-ticket items in periods of uncertainty,” said Lawrence Yun, NAR’s chief economist.

In 2007, some 740,000 vacation homes were sold, down 31 percent from the 1.07 million sold in 2006. Sales of investment homes dropped 18.1 percent to 1.35 million. In contrast, sales of primary residences dropped 10 percent over the same time period. In total, second homes still made up 33 percent of all home sales in 2007, but that is down from a 36 percent slice in 2006.

The report points to the tightening of the credit markets in the second half of 2007 and more buyers sitting on the proverbial real estate fence as two reasons for the downturn in activity. Also noted was the exit of real estate speculators, investors who during the height of the real estate market in 2003 and 2004 would pick up, say, multiple preconstruction condominium units in a single development in hopes of flipping those units back on to the resale market when building was complete. Several markets, including Miami, Las Vegas and Phoenix, have seen such investors flee, and prices drop.

Even with these dreary numbers, the NAR survey did point to the bigger demographic trend of rising affluence among baby boomers, ripe for making second home purchases, as one sign that this dip may be short-lived. In fact, the survey noted that eight out of every ten second home buyers considered it a good time to invest in real estate, versus closer to six in ten primary home purchasers. But considering that a second home purchase is for the most part discretionary, it’s not surprising that most buyers diving into this market now would feel positive about doing so.

The NAR report didn’t cover vacation home alternatives like destination clubs and fractional residences. According to market researcher Ragatz Associates, destination clubs and fractional residences saw sales of $2.3 billion for 2007, up 8.3 percent over 2006. However, the overall real estate market is impacting these vacation home choices as well, since most of that rise can be attributed to an increase in the number of fractional projects in active sales rather than a jump in prices or sales volume at individual projects.

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