A new analysis published by UBS Group concludes that housing prices in Australia could fall as much as 30% under a deep recession scenario.

UBS analyst Jonathan Mott assembled five different cases with five different outcomes to try and predict the direction that Australia’s housing market could go. In the worst of these cases, the country's 27 year economic expansion comes to an end, unemployment moves higher and the Central Banks cuts interest rates to zero in order to respond.

Mott thinks that current conditions are already reflecting the very real possibility of a housing correction and also warns that risk of a credit crunch "is real and rising" according to a new Bloomberg article.

Mott stated: "The rapidly deteriorating housing market is a signal of even tougher times ahead. The housing credit squeeze experienced over the last six months is expanding. The outlook for the banks has not been as challenged since at least 2008."

This prediction comes a time when tighter lending standards have restricted the availability to borrow in Australia, causing the country to enter its second year of a housing slide. Major cities like Sydney and Melbourne are leading the declines, down 7.4% and 4.7% in October from the previous year, respectively. These were the two hottest markets when prices were on their way up in years prior.

The Reserve Bank of Australia has kept its rate cash rate unchanged and at a relatively low 1.5% since the middle of 2016. The crunch is coming mainly from regulators cracking down on riskier loans, such as interest-only mortgages, that are more popular with speculators than traditional buyers. On top of that, Australian Regulators have enforced more stringent verification on expenses that is tightening the amount of money people are able to borrow. Already, Australians have some of the highest household debt in the world. We pointed this out back in August of this year.

The Australian household debt to income ratio has ballooned to shocking levels over the past three decades as Sydney is ranked as one of the most overvalued cities in the world. According to the Daily Mail Australia, credit card bills, home mortgages, and personal loans now account for 189 percent of an average Australian household income, compared with just 60 percent in 1988, as Callus Thomas, Head of Research of Topdown Charts, demonstrates that record high household debt is a ticking time bomb:

Part of the reason Australia's housing prices boomed as much as they did was from an influx of overseas capital. 

We also recently just wrote about the urgency with which the Chinese middle class was trying to get capital out of the country. One of the main ways to do this? Invest in homes in places like Australia. Those looking to buy real estate outside of the country have negatively impacted many local economies, sometimes causing housing markets to bubble.

In response, Australia has tried to tighten its foreign investment rules in response to Chinese capital inflows. In 2016, the land Down Under even made it illegal for the country's four major banks to lend to foreign property buyers without domestic incomes. New Zealand went so far as to simply prohibit foreigners from buying property altogether because the demand was driving property prices out of the reach of locals. Canada did something similar, canceling its Canadian Federal Immigrant Investor program because of the huge backlog and bubbly real estate markets in places like Vancouver and Toronto.