UBS has become even more pessimistic about Australian home prices

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Australian home loan lending data for December was so weak that UBS says it'll likely lead to even larger falls in home prices than previously thought.

"The accelerating fall in home loans shows tighter credit is playing out," Tharneou says.

"Looking ahead, while the Royal Commission didn't make material changes, we downgrade our long-held forecast peak-to-trough drop in home loans, meaning housing credit growth will likely slow to 2% year-on-year by 2020 [with the risk it could be even weaker]."

And where credit growth goes, house prices tend to follow.

"We also cut our peak-to-trough forecast of home prices to 14%, even assuming the RBA cuts rates," Tharenous says.

"This is double the 7% decline so far."

Previously, UBS saw national home prices falling by 10% from peak to trough, led by falls in Sydney and Melbourne.

Given the risks that the housing downturn will spillover into other parts of the Australian economy, UBS sees Australian GDP growth slowing to 2.3% this year, an outcome it expects will lead to a modest increase in unemployment and two rate cuts from the RBA, the first delivered in November this year.