The shooting happened around 10:30 p.m. Saturday at 50 Renninger Road, in an isolated farmhouse in Douglass Township.
Police say the victims were found in several rooms and they had all been shot in the head with a small caliber handgun.
43-year-old Joseph Shay and his girlfriend's 2-year-old son, Gregory Erdmann, were killed. Both were shot in the head.
The boy's mother, 37-year-old Kathryn Erdmann, was able to call 911 before passing out. She also was shot in the head and is hospitalized in critical condition.
The homeowners, 64-year-old Paul Shay and 58-year-old Monica Shay, are also listed in critical condition.
The couple live in the East Village of Manhattan, where Paul Shay owns a plumbing company, and his wife is the director of the arts and cultural management program at Pratt Institute.
A neighbor, Dan Hoyt, 48, told The New York Daily News that Joseph Shay, their nephew, moved in about a year ago and did construction work for his uncle. "He was trying to help Joseph out," Hoyt said of the uncle.
"It's unreal. It's something that you never expect really in this area," neighbor Bob Renninger said.
Throughout Sunday morning, SWAT teams and a State Police helicopter scoured the area looking for the gunman.
The area is mostly rural farm land.
Paul and Monica Shay would use her old family farmhouse in Gilbertsville for weekend getaways.
This weekend, they had their nephew Joe, and his girlfriend and her son with them.
Law enforcement sources believe Joe, who lives outside Boston, was the intended target.
Neighbors are appalled.
"Very, very scary and very sad that it brings somebody to do something like that and children involved; it just breaks my heart," neighbor Ruth Harvey said.
Police continued their search throughout the day, but the killer apparently fled the area immediately.
The survivors were unable to speak to investigators, First Assistant District Attorney Kevin R. Steele said.
Authorities are now trying to figure out why this family was targeted for execution.
Steele urged residents to assist in the search.
"If anyone in the area sees anything unusual, sees any people or person that is unfamiliar to them in the area, we're asking for them to call the police department right away," Steele said.
Anyone with information is asked to contact Douglass Township Police at 610-367-0466 or Montgomery County Detectives at 610-278-3368.
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The Associated Press contributed to this report.
