Retiring baby boomers driving up prices of vacation homes.

Patricia and George Riddiford sold their vacation home last month for $925,000, reaping a 28 percent profit on the golf-resort property near Las Vegas that they bought in 2002.

"For us, it was all alternative to investing in the stock market and. at the same time, it gave us a quiet and protected place to get away to," said Patricia Riddiford, a homemaker whose husband runs a roofing company.

Now, the Riddifords, who live in Chicago, are building again, on a $570,000 half-acre lot in the same Nevada resort.

They're among the baby boomers in their peak earning years who are igniting demand for second homes near beaches, lakes, ski resorts and golf courses. A record 445,000 vacation homes were sold in 2003, a 24 percent gain from the 359,000 sold in 2001, according to the National Association of Realtors.

As demand rises, prices for vacation homes probably will increase at a pace more than double the 6.7 percent forecast for the overall residential market in 2004, according to David Lereah, the NAR's chief economist.

"It's all demographics," said Lereah. "We're seeing the baby boomers nearing retirement age, and we're seeing real estate play a more prominent role in their investment planning because of their memories of the stock market declines."

The leading edge of the baby boomers, the 29 percent of the U.S. population born from 1946 to 1964, turns 58 this year. That means the heightened demand for vacation and retirement homes probably will last for at least the next decade as they aim to buy their place in the sun.

'Camp for grown-ups'

Boyd and Sandi Montgomery of Sylvania, Ohio, are buying a two-bedroom ranch for $285,000 at the Sun City Grand development in Surprise, Ariz. "I guess you could say it's a little bit like camp for grown-ups," he said. "I'm looking forward to meeting new people and having fun."

The Montgomerys, who said they would use the home for vacations and eventual retirement, visited Florida, Texas and Arizona before settling on Sun City Grand. The development, built by Pulte Homes Inc.'s Del Webb subsidiary, the largest U.S. builder of retirement communities, is an "age restricted" community where buyers have to be over 55 years old.

Demand for second homes may be restrained if mortgage rates rise as the Federal Reserve raises its interest rate target. Qualifying for a mortgage may also become more difficult as the cost of carrying debt on credit cards increases.

Federal Reserve policymakers raised their target for overnight loans between banks a quarter point to 1.25 percent on June 30, the first increase in four years, to ward off accelerating inflation. Economists expect another quarter-point rise at the Fed's next meeting, on Aug. 10.

But Chief Executive Richard Dugas said he doesn't fear rising rates. "Fifty percent of the 'active adult' buyers pay cash--less interest rate sensitive than some other groups," he said.

Indeed, the pool of likely second-home buyers--people 35 to 65 years old with household incomes above $125,000--will almost double in the next five years to 11.4 million from 5.8 million, according to a study by Centex Destination Properties, the vacation-home unit of Dallas-based homebuilder Centex Corp.

Rising prices

Mary Koehlinger, 58, a homemaker from Brockton, Mass., is seeing the impact of demand on prices firsthand. She and her husband, James, an accountant, are buying at the Spruce Creek Country Club in Summerfield, Fla.

"We locked in at the fight time," she said.

They signed a contract four months ago to buy the three-bedroom house for $220,000 and will close in September. Today, similar homes in the Del Webb development are selling for $255,000, 16 percent higher, Koehlinger said.

The lowest mortgage rates since the 1960s and inheritances fattened during Wall Street's boom years from 1995 to 1999 have helped fuel demand for vacation properties. While the U.S. average rate for a 30-year fixed mortgage has risen more than half of a percentage point. to 6.01 percent, in the last three months, borrowing costs remain low enough to make a second-home purchase affordable, according to David Berson, chief economist at Fannie Mac. the largest U.S. home-loan financier.

The vacation-home market has been boosted by a 1997 federal tax law change allowing married couples to exclude from capital gains tax as much as $500,000 profit from selling their home. Under the old law, sellers had to reinvest capital gains in a more expensive property to avoid the tax.

The change allows "empty nesters," people whose children have grown up and left home, to trade a large home for two smaller properties without taking a tax hit. Federal tax laws allow owners to deduct mortgage interest payments for two homes for as much as $1 million of indebtedness.

Robert Zamora, president of Zamora Automotive Group, a chain of car dealerships in Stockton, is keeping his contemporary-style home in Lodi as he and his wife, Christine, look forward to more leisure time.

The Zamoras bought a four-bedroom, Tuscan-style home eight months ago at Superstition Mountain Golf and Country Club, about 25 miles east of Phoenix. The house listed for $2.5 million; Zamora declined to say how much they paid.

"It's all about recharging my batteries," he said. "When I'm not working, I need a place that's very serene and quiet, where I can play golf with my wife."