Home prices in Australia could plunge as much as 30% under a deep recession scenario analysis conducted by UBS Group AG.

In the worst of five scenarios assembled by UBS analyst Jonathan Mott, Australia’s 27-year economic expansion ends, unemployment rises and the central bank cuts interest rates to zero.

In a Nov 12 research report, Mott currently forecasts conditions as reflecting the third scenario - a housing correction - but warns that the risk of a credit crunch is “real and rising”.

“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,” Mott, who is bearish on the nation’s lenders, was quoted saying by Bloomberg.

According to Bloomberg, Australia’s housing downturn has entered its second year amid tighter lending restrictions. Sydney and Melbourne, the hottest markets when prices were surging, are now leading the declines, falling 7.4% in October from a year earlier and 4.7%, respectively.

Bloomberg also reported that while the Reserve Bank of Australia has kept its cash rate unchanged at a record-low 1.5% since August 2016, regulators have cracked down on riskier loans such as interest-only mortgages that are popular with property investors. Further, Australians carry some of the highest household debt in the developed world.

Source: Bloomberg