Strong demand for Hawai'i residential resort properties pushed sales prices and volume to record levels last year, but the market this year appears to be cooling, according to a new report.

New and previously owned properties — including luxury villas and vacant lots at resorts from Ka'anapali to Ko Olina — generated sales of $2.86 billion last year, up 43 percent from $2 billion a year earlier, according to data compiled by local market researcher Ricky Cassiday.

The number of transactions rose 10 percent to 2,289 from 2,078, and the average selling price was up 30 percent to $1.25 million from $961,881 during the period.

But 2005 likely will be the market's peak, because preliminary sales data for the first three months of this year indicate sales are declining and average prices are plateauing, Cassiday said.

"Our current assumption is that the trends will continue, with the pendulum swinging back toward favoring buyers relative to sellers," he said.

"Higher (interest) rates, sticker shock, buyer exhaustion will be eating away at the strong demand."

The expected slowdown for resort home property this year mirrors the state's primary, non-resort housing market where economists project sales will fall, but prices will rise close to 10 percent.

Cassiday said he expects resort home prices will rise in the single-digit percent range, while the number of sales will decrease by around 10 percent.

Local residents are fueling the primary housing market, while the resort-home market is being dominated by condominium buyers from the Mainland retiring in Hawai'i or acquiring second homes.

Even with the expected slowdown, Cassiday said 2006 should be the second best year for Hawai'i's resort-home market.

Cassiday expects the market to find new strength as buyers from Japan return in larger numbers, and affluence spreads in developing parts of the world such as Korea, China and India.

"Hawai'i has always been attractive to the affluent," he said, noting that strong demand for resort homes was seen during the oil boom of the mid-'80s, followed by the Japanese bubble economy, the dot-com phenomena and the recent U.S. real estate boom.

Mary Hakoda, principal broker of Island of Lana'i Properties, said buyers have been "extremely receptive" to a three- and four-bedroom oceanfront condo project called The Palms at Manele Bay.

Of 16 units released for sale in June 2005, 12 have sold, and a second phase of 22 units is being put on the market for $2.3 million to $2.8 million.

"We anticipate sales of The Palms to remain strong through the end of the year," Hakoda said.

Cassiday's report showed that there were 10 resort home sales on Lana'i last year. O'ahu had 279, and Kaua'i had 634. There were 653 sales on Maui, which for the first time yielded the top spot for resort-home property sales to the Big Island, where there were 713 sales last year.

The highest average price by island was $1.65 million on the Big Island, followed by $1.46 million on Maui, $903,523 on O'ahu and $731,960 on Kaua'i. Figures for Lana'i were not available.

The highest single price for a resort home property was $20.6 million for 35,000 square feet of land at Kuki'o, a gated oceanfront golf community on the Big Island. The Kuki'o lot, which was the highest single resort home property sale since a $16.5 million transaction in 2002, was initially purchased in 2002 for $12 million, according to property records.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.