In this apocalyptic scenario specified by the UBS, when Australia falls into a d deep recession Avustralya, housing prices may fall by more than 30 percent.

The worst-case scenario is one of five outlined by UBS analyst Jonathan Mott in a client note this week, “Catching a falling knife”, in which he warned the outlook for the banking sector had “not been as challenged since at least 2008”.

“The recently completed bank reporting season suggests the outlook for the banks remains challenging,” Mr Mott said. “However, we believe the rapidly deteriorating housing market is a signal of even tougher times ahead.”

Prices in Sydney and Melbourne fell again in October to be 8.2 per cent and 4.9 per cent down from their respective peaks in August and November 2017, while the combined capitals were down 4.6 per cent over 12 months.

UBS said the housing credit squeeze over the past six months was spreading into owner-occupier lending, and further tightening would be “almost inevitable” after stricter debt to income requirements are implemented after the banking royal commission.

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