Digital camera sales are defying expectations.

Two years ago, camera sales were expected to hit a peak and begin falling. Instead, sales are expected to grow 16 percent this year, and analyst Chris Chute at research firm IDC expects them to grow an additional 8 percent in 2008.

"We really thought the growth had ended," says Chute. "People are either upgrading their cameras now, because prices are so low, or replacing dead models."

About 122 million cameras will be shipped to stores this year, up from 105 million in 2006, says IDC.

Camera manufacturers have found new ways to entice buyers, with tools such as image stabilization, first found in video cameras.

"It's really easy to understand," says Chute. "You don't want blurry shots? Try this camera, it will compensate for a shaky hand — and it really works."

In the United States, about 65 percent of households own at least one digital camera, or 106 million Americans, says the Photo Marketing Association.

One of the fastest-growing areas in camera sales is the digital SLR, or single lens reflex, which lets shutterbugs use interchangeable lenses for wide-angle and close-up shots. These cameras used to start around $1,000, but prices have become more competitive. SLRs from Nikon and Pentax now sell in the $500 range, and Chute predicts we'll see an SLR for about $300 this holiday season.

The Pentax K100D digital SLR is available for $349 (with a $100 rebate) at some aggressive discounters online.

Much of the pricing action happens between Thanksgiving and New Year's, which is when manufacturers see 45 percent of their total sales for the year.

In the third quarter, camera makers sold 8.4 million units, says IDC, with Canon holding onto its lead as the No. 1 manufacturer, with 23 percent market share. Sony, with 18 percent, was No. 2, and Kodak was No. 3 with 15 percent.