Sales of new and existing homes at Hawai'i vacation resorts are projected to fall for a second straight year, according to a new report.

The report, based on second-quarter sales tracked by local market researcher Ricky Cassiday, forecasts 1,780 resort-home sales this year, down 9 percent from 1,951 last year and after a peak of 2,271 sales in 2005.

Second-quarter sale prices averaged $1.65 million, up 23.5 percent when compared with $1.34 million for all of last year.

Average prices are higher, the report said, partly because of delivery of new homes at the extreme high-end of the market, such as Kuki'o on the Big Island and Wailea Beach Villas on Maui. Also, there were fewer purchases of homes sold for less than $1 million.

Cassiday said there is a "reasonable probability" that price deflation occurring in some Mainland housing markets will happen in Hawai'i, especially because recent trouble in the global mortgage finance market has made it more difficult and expensive for homebuyers to obtain loans.

"The rise in prices this year is probably unsustainable, over the longer run, unless the financial markets settle down and buyer confidence returns," Cassiday said in the report.

Cassiday added that softer demand is likely to mean lower prices this year and next year, and that he expects to see sellers cut prices or offer incentives for homes at the lower end of the resort home market.

Ric Rocker, a broker specializing in luxury homes inside and outside resorts on the Big Island, said wealthy investors should continue to keep demand strong for Hawai'i vacation homes at the high end.

According to Cassiday's report, the top price paid for a resort home in the second quarter was $26.5 million for the Big Island estate of Matson Navigation Co. heiress Lurline Matson Roth. The 7,105-square-foot oceanfront house, on 10 acres next to Mauna Kea Resort, was listed for $35 million. The sale topped the biggest sales for 2006 ($18 million) and 2005 ($20.6 million).

At the low end of the resort home market, Cassiday projects there will be about 25 percent fewer homes sold for less than $1 million this year. The decline is expected to occur largely on O'ahu, where a couple new projects at Ko Olina Resort & Marina have been completed.

Sales on the Neighbor Islands are expected to rise modestly this year. Last year, sales were down on Maui, the Big Island and Kaua'i, but up on O'ahu.

O'ahu resort homes had the lowest average sale price at $731,540, followed by Kaua'i at $1.06 million. Maui had the highest average price at $1.93 million. The Big Island's average price was $1.87 million.

Cassiday's report includes sales of single-family homes, condominiums and home lots within master-planned communities with resort zoning, which excludes Waikiki.

The report showed that a slowdown in sales of previously owned homes since last year has made new homes a bigger portion of the market, representing about 40 percent of all resort-home sales.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.