The price of the average Kiwi bach has plummeted in the past year, with holiday homes losing value faster than residential properties, a new report from the National Bank says. Economists predict this will continue until the economy picks up.

The report compares house prices in popular holiday locations such as Paihia, Coromandel, Queenstown, Mount Maunganui and Malborough Sounds.

House prices in the holiday locations studied have dropped 10% in 2009 so far compared with the same period in 2008, whereas the rest of the country only eased by 3%t.

ANZ chief economist Cameron Bagrie says, “Our findings show that over the past 16 years dwelling prices in the main holiday locations have increased faster than the rest of New Zealand. It is not surprising to see that the price adjustment for holiday houses is now surpassing on the downside too.”

During the time studied from 1992 to the most recent 12 month period, the average price of homes in these holiday spots has increased nearly threefold compared to a nationwide home price increase of twofold.

Today, the average price of a dwelling in the traditional holiday areas of New Zealand is $409,000. When surveying began in 1992, investors could pick up a bach for $108,000. Prices in the rest of the country rose from $116,000 in 1992 to $346,000 today.

“Holiday homes are a discretionary expenditure item. As such, we would expect that prices in this segment of the real estate market would exhibit a different pattern to a traditional house used exclusively as a full-time residential dwelling,” Mr Bagrie says.

During 2003 to 2004, the average dwelling price over all holiday locations increased by a massive 27%. The rest of New Zealand only rose 12% during the same period.

“With the nation bracing for a deteriorating economic environment, we are seeing the prices in these locations unwind on the downside a lot faster than other parts of New Zealand.

“As the economy de-leverages and discretionary spend comes under pressure, we fully expect this dynamic to continue,” Mr Bagrie says.