(Bloomberg) -- Australian home prices will likely tumble another 15% this year as part of the largest property decline on record, Jarden Securities Ltd. said, predicting the Reserve Bank will increase interest rates to 4.1% by May.

The yearlong housing downturn had been losing momentum of late, driven by hopes of a pause in the RBA’s tightening cycle, economists Carlos Cacho and Anthony Malouf said. But the RBA’s surprisingly hawkish turn Tuesday when it hiked to 3.35% and signaled more to come “risks upending this budding optimism,” they said.

“We now see too much downside risk to our long-held forecast of a 15-20% peak-to-trough fall in house prices and downgrade to a 20-25% correction,” the duo said in a note Thursday. “This would be the largest correction on record.” 

So far, prices in the the A$9.2 trillion ($6.4 trillion) housing market have tumbled almost 9% from an April 2022 peak. Jarden, an investment firm, had previously forecast the RBA’s terminal rate at 3.6%.

While a correction is welcome after prices surged more than 28% during the pandemic, when the cash rate fell to a record-low 0.1%, a crash would intensify recession risks given Australian households are among the most indebted in the developed world.

A debt-to-income ratio of 188.5% makes them vulnerable to rising borrowing costs, with the average mortgage rate seen climbing above 6% this year.  

Jarden’s Cacho and Malouf see a drag in earnings for property firms including REA Group Ltd., Domain Holdings Australia Ltd. and PEXA Group Ltd. 

They are “cautious” on consumer discretionary spending sector such as Harvey Norman Holdings Ltd. and JB Hi-Fi Ltd. 

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