The woman at Westcountry Property Auctions was adamant: don’t be late. At their sale in March, she said, cars were queuing back to the A30 and the doors had to be closed early, otherwise they’d have had health and safety to deal with.

Last month’s event was a more restrained affair; but, as proceedings got under way, it was standing room only in the ballroom of the Penventon Park Hotel, in Redruth, Cornwall. The mirrored disco balls, crew from BBC daytime television’s Under the Hammer and gaggles of overexcited estate agents made for a good day out; the whiff of potential profit gave it an edge. By the time Ol’ Blue Eyes was crooning Chicago for the second time over the PA system, everybody was ready for action.

What a letdown. There were 50 lots in the brochure. Number one had been sold previously. Bidding for number two, a five-bedroom freehold terraced house in the pretty town of Helston, petered out at £174,000 - £11,000 below the guide price and short of the reserve. The next few lots went at or below the guides, and from then on it was downhill. A run of five seemingly desirable properties were withdrawn for lack of interest and the auctioneer’s jokes got seedier as he became increasingly desperate.

In all, fewer than one in three properties sold, and several received no interest at all. This time last year, they would have been walking out of the door. “It was a bit flat, to put it mildly,” says Angus Donald, director of Westcountry Property Auctions. “But it’s a good barometer of today’s market, and a damn sight better than a few other recent auctions upcountry.”

The southwest has been one of the star performers in the decade-long property boom that has just come to a juddering halt. The region provided the three best-performing coastal towns in England and Wales last year. Against a national average rise of 14%, Rock, in Cornwall, saw house prices increase by 28%, from £282,097 to £361,838, according to a survey by Hali-fax Estate Agents. Sandbanks, in Dorset, went up 22%; Fowey, in Cornwall, rose by 20%.

Now, however, a heavy dependence on holiday-home buyers - the highest in the country - means the local market looks likely to suffer more than most from the current slowdown. The consultancy Capital Economics says that the number of second homes fell by about 25% during the housing slump of the early 1990s; it expects a similar decline this time around.

So, should second-homers in the southwest be feeling smug or scared? “Prices are not going to go up for a while, but good properties in Devon and Cornwall, especially on the waterfront, are almost ring-fenced,” says Simon Scott-Nelson, an agent at Knight Frank’s waterfront department in Exeter. “Everything above £3m is selling well because of demand and supply. If you miss out on one now, you miss out for generations.”

Alex Roads, sales director at John Bray estate agency in Rock, agrees: “The party’s over for the uplift in prices, but there is no distress selling here, ever, and we are probably less badly hit than most. Times are bad, but we are selling properties when the vendor is realistic.”

That said, anything overpriced is not selling - however good it is. Take Snapes Manor, a Grade II*-listed, seven-bed Georgian house in 5.6 acres overlooking fashionable Salcombe.Last September, it was on the market at £7.5m. Now Knight Frank and Savills would sell it to you for £5m. Martin Lamb, director of Savills in Exeter, says such “adjustments” are strategic: “We have to create interest, and £7.5m was just too high.”

Rozie Pether, 46, and her husband, David, are happy to be realistic, but at the same time, don’t have to sell. They want a fair price for a unique home: a 4,000 sq ft flat created from the ground and first floors of a large house in Kingswear, Devon. “All the main rooms open onto a terrace or balcony,” Rozie says. “The views are amazing - over Dartmouth Castle, the sea, river, creek, a church, old mill, woodland and fields.”

Last year, the Pethers’ home might have fetched £2m, says Lamb, who set a guide price of £1.75m for the property in April. It has attracted a number of viewings and an offer that fell through, but the couple are happy to wait.

“We want to move somewhere smaller, but we are not desperate and we are not going to give it away,” Rozie says.

While developers around the country, including many in the West Country, have downed tools to sit out the credit crunch, those who have already acquired prime sites are betting on coastal cachet to see them right.

Richard Knowles, UK director of Benton Property Holding, is pressing ahead with the conversion of Fallapit House, a Grade II-listed manor house near East Allington, in the South Hams district of Devon. The house, set in a 22-acre valley, is being converted into eight two- and three-bedroom flats, which, together with seven new two-storey houses, will be available later this month. Prices start at £400,000, through Savills and Marchand Petit.

The properties are top-end chic, but the added value comes from the building itself, with 16th-century panelling and far-reaching views over peaceful rolling countryside, and from the extras thrown in, including membership of Dartmouth golf club. Owners will be given the chance to bypass waiting lists for moorings in the Salcombe estuary and a permanent lifestyle concierge will be available. It’s a substantial project. Eventually, there will be 32 flats in and around the manor house, which had been derelict for several years before Benton bought it three years ago for £2.5m. A further £10m has been spent on building work.

“When the credit crunch started in August last year, clearly it was of some concern to us,” Knowles says. “We could have mothballed the project, but we did our research and found that, though the middle and bottom end has been clobbered, the top end has been less affected. There’s still no real evidence that prices have gone down in the special parts of the southwest, though volume has slowed dramatically.”

Liam Bailey, head of residential research at Knight Frank, concurs. “The wider market has been affected by the fact that the mortgage market has effectively dried up, with sales down 40% year-on-year across the UK,” he says. “The southwest, however, has a top-end market where coastal honey-pots are in short supply, and there is huge demand. While the affordable second-home market is at risk, this top-end market is one of the safest. Values may hold, though you are unlikely to see rises for at least 12 months.”

New developments in the right places are also selling. The Tregurrian Apartments – probably the last development on Watergate Bay, which is overlooked by Jamie Oliver’s Fifteen Cornwall restaurant – has one-bedders starting at £315,000. Of 22 units, 13 were reserved at launch, six weeks ago. Similarly, the Zinc development, with views of Newquay’s Fistral Beach, is 60% sold. Two-bedders start at £275,000; for sea views on the top floor, expect to pay £500,000. Both developments are being sold through Knight Frank.

Prospect House, a converted hotel on the cliffs near South Hallsands, in the South Hams, launched four months ago. Seven of the 16 units have been sold, at prices ranging from £320,000 for a two-bed flat to £680,000 for a fourbed house, also through Knight Frank.

“Developers who have started building, but not right on the sea, are holding back and waiting,” says Miles Kevin, a partner at Knight Frank’s residential development department in Exeter. “Those with frontline sea views, however, are going ahead. They are getting off-plan sales because people don’t want to miss out.”

Top 10 locations in the southwest (average property prices for 2007 in the postcodes indicated):

1 Sandbanks (BH13 7) £837,435

2 Salcombe (TQ8 8) £491,307

3 Rock (PL27 6) £458,495

4 St Mawes (TR2 5) £413,280

5 Dartmouth (TQ6 9) £352,642

6 Chagford (TQ13 8) £342,184

7 Padstow (PL28 8) £338,234

8 Fowey (PL23 1) £330,623

9 Lyme Regis (DT7 3) £304,665

10 Budleigh Salterton (EX9 6)£300,906

Source: Savills

Westcountry Property Auctions (0870 241 4343, www.westcountrypropertyauctions.co.uk); Knight Frank (01392 848844, www.knightfrank.co.uk; Savills (01392 455755, www.savills.co.uk ); Marchand Petit (01548 857588, www.marchandpetit.co.uk )

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