Estate agents reported a further slowdown in activity in the property market in the third quarter of 2008, according to First National Bank's home loan barometer released on Monday.

"From a level of 4.4 (on a scale of 1 to 10) in the second quarter, survey respondents reported a further decline to an average activity level of 4.1, the lowest in the history of the Barometer," First National Bank's home loans property strategist John Loos said.

A further indication of the weakening trend was also found in the average length of time that a home stayed on the market before being sold.

From an average time of 14 weeks and six days in the second quarter, the average time shot to 20 weeks and one day in the most recent quarter.

First time buyers made up a mere 12 percent of the market, the lowest percentage on record, while the percentage of sellers not obtaining their asking price rose further from 85 percent to 88 percent.

13% buy-to-let buyers

The buy-to-let market portion of the market also remained subdued with only 13 percent of total buyers believed to be buy-to-let buyers.

Loos said, however, that there had been a few encouraging signs emerging regarding the future well-being of the residential market.

Most notably was the recent decline in oil prices, resulting in domestic petrol price cuts and some softening in global food price inflation also bodes well for domestic consumer price inflation.

It is believed that the CPIX (Consumer Price Index excluding interest rates on mortgage bonds) inflation rate may be around its peak.

The start of an expected decline in inflation would mean inflation eating less into disposable income going forward, and this is also expected to translate into interest rate cuts from April 2009, Loos said.

In addition, the household sector's debt-to-disposable income ratio had begun to decline, suggesting an improving household sector ability to service its debt burden.

But while inflation and interest rate risks look set to subside, which was great news for a property market under pressure, Loos cautioned against too much excitement just yet.

Threat to global economic growth

He said moving in to replace the above risks was the current threat to global economic growth emanating from the United States.

"It would be naive to think that South Africa's property and financial sectors are not significantly exposed to potential fallout from the United States financial and housing sector crisis via the potential impact of the crisis on our economy."

He said while the US financial sector's bailout plan was a fait accompli, it remained to be seen as to how strictly the recovery plan was regulated, and how tight lending policies to households in that country became in an effort to restore responsible lending practices.

The combination of tight household/consumer lending and falling house prices could have a major impact on already-low US consumer confidence and thus on economic growth in the world's largest economy.

Loos said it is really not known how bad the crisis in the US is.

SA not be immune from recession

"If things get bad enough... South Africa would not be immune from recessionary conditions and financial stress," he said.

Loos said that while FirstRand's most likely scenario was one of slower domestic economic growth – but remaining positive, which would lead to a recovery in residential property demand from next year as interest rates decline – the current global growth risks would be ignored at one's peril.

"If matters get significantly worse than expected from a growth point of view, the residential property market will not escape unscathed."

Loos said caution should be exercised regarding spending and borrowing practices until such time as there were reliable indications as to whether the US crisis was near its end or not.

"Despite some encouraging inflation and interest rate signs, we're far from being out of the woods yet," Loos said.

Sapa