STRATTON, Vt. (AP) – David Tesher and his wife, Anita, had a couple of goals as they were shopping for a vacation home.

They wanted a place where they could relax with their young family and spend quality time together away from their busy lives in New York. And they also wanted a place that had a little more financial promise than the Internet stocks that proved such short-lived investments a few years ago.

Tesher, his wife and two young daughters found all of that in the pricey real estate developments that have been erected in recent years around the base of Stratton Mountain, four hours from their home on suburban Long Island.

And, when they bought four years ago, they helped to create the growing national trend toward investing in vacation and investment homes.

As of last year, there were more than half as many second homes around the country as owner-occupied homes – 43.8 million second homes versus 72.1 million principal dwellings – according to the National Association of Realtors.

“I looked at Vermont and a second home as a means for us to have family gatherings in the immediate future where I could build strong family time on weekends without distraction,” Tesher said.

Like Tesher, millions of people had bad experiences with the Internet stock bubble. They began buying real estate as a safer investment, pushing second homeownership to unprecedented levels.

A National Association of Realtors report found that 2.82 million homes sold last year were purchased as second homes for owners’ vacations or as an investment.

More than a third of all home sales in 2004 involved second homes.

Nowhere in the country is that emerging trend more profound than in the rural mountains of northern New England. Maine has the highest percentage of second homes in the country, followed by Vermont.

The region’s attraction is driven by the millions in metropolitan Boston and New York who can easily escape to the mountains, leaving behind careers and concerns about terrorism.

They find much more affordable real estate that they can buy more easily by using equity they’ve built up in their primary home in the past decade or so.

“The returns, because real estate prices have been going up so rapidly, are attractive,” said economist Thomas Kavet, who follows real estate trends as an adviser to the state Legislature, among other clients.

The huge investments in the northern states has been a mixed blessing.

Although people in the states appreciate the jobs created by multi-million-dollar developments like those ringing Stratton, the condominiums and other homes drive up the cost of all real estate.

People who live and work in a place like Stowe in northern Vermont, for example, have found it increasingly difficult to buy a home.

The homes that are being built and sold are generally high-end units. At Stratton, a luxury three-bedroom two-bathroom condominium complete with stone counters in the kitchen, wainscoting, a stone fireplace and such touches as a candelabra made from antlers went on the market for around $600,000, said real estate sales director Steve Coombs. It’s for sale again after being occupied only since December and is likely to go for $125,000 to $150,000 more than its initial sales price.

Higher up on the mountain, a four-bedroom townhouse with an outdoor hot tub, a whirlpool tub in the master bathroom, a stone fireplace, granite counters, a log ceiling and such amenities as a boot warmer in the mudroom sold initially for $1 million and now is being offered for $1.25 million, Coombs said.

Both units can be moneymakers for the owners even as they continue to own them. The condo rents for $700 a night on weekends during the ski season, Coombs said, and the townhouse can fetch $55,000 to $65,000 for a full-season rental.

Stratton and other developers don’t encourage swift turnover of property, though, preferring the stability provided by people who will use the housing for themselves, their families and friends or offer it as rentals to other resort guests.

The fear for developers is that speculative buying can lead to the kind of real estate bubble that economists are warning is building. Such bubbles can pop, leading to foreclosures or vacant housing.

Federal Reserve Chairman Alan Greenspan has said there “signs of froth” in real estate markets that could lead to falling housing prices, although he has rejected suggestions of an impending downturn.

Dean Baker, an economist and co-director of the Center for Economic and Policy Research think tank in Washington, has warned that a collapsing housing bubble could create a national recession. He argues that real estate has become especially heated in places like New England and if it cools quickly, the national economy could be damaged.

“House prices that are too disproportionate with the prices elsewhere will simply make the economies in the bubble areas uncompetitive, leading those regional economies to contract until house prices fall back to a level where these regions can again be competitive in a national and world market,” Baker wrote in a report on his theories.

Much of the most expensive second home stock is being bought by people who are relatively wealthy or have earned great equity in their primary residences and were able to buy another place. The Realtors’ report said the typical vacation home buyer in 2003 had a $71,000 annual income and investment-property buyers had a $85,700 income.

Given there has been such price appreciation over the past few years – as much as 18 percent some quarters in Vermont – Vermont Economy Newsletter Publisher Arthur Woolf believes that most of those second-home buyers would be able to withstand even a 20 percent downturn with little or no harm.

“If it’s only vacation homes then those people take a capital loss. The houses are still there,” he said.

Tesher of Manhasset, N.Y., says he plans to hang on to his two condos in Stratton, so he doesn’t believe he’s contributing to a bubble or a bust. But he does worry about buyers who have relied on interest-only loans, variable rate mortgages and other vulnerable financing schemes. They could precipitate a bust and he doesn’t really want his investment to devalue, even if it’s only on paper.

“For me, I feel comfortable now even if the market corrects 20 percent or more,” he said. “I’m still at what I invested.”

—

On the Net:

Stratton Mountain: http://www.strattonrealestate.com

AP-ES-07-30-05 1237EDT