Falling house prices pose "the most serious threat to Australian credit markets" over the next 12 months, according to fixed income investors polled by Fitch Ratings.
In its latest survey, 70 per cent of fixed income investors ranked a housing market downturn as the top risk. When Fitch asked the same question a year ago, 29 per cent rated a housing downturn a high risk.
Ninety-five per cent said Australian house prices would continue to fall throughout 2019.
Investors were more optimistic about the employment market, with all survey participants saying they expected unemployment to stay at or below 6 per cent this year. Seventy-seven per cent said the unemployment rate would be 5.5 per cent or less. The RBA's most recent estimate is around 5.0 per cent.
Fitch found investors see little prospect of the banks loosening their lending standards in the coming year.
More than 70 per cent said borrowing conditions would get tougher for high-yield corporates, SMEs and retail sector borrowers.