Sydney property prices to fall by 5 percent as HSBC cut 2018 capital city growth forecasts

HSBC has cut its house price forecasts for Sydney and Melbourne.

Tighter prudential settings, the pullback in foreign demand and a boost in housing supply triggered the change in its Sydney outlook.

HSBC expect Sydney prices to a fall between 3 percent and 5 percent over 2018, compared with a gain of between 2 percent and 4 percent it last predicted in December.

Brisbane's forecast is down 2 percent and 0 percent instead of a 1 percent to 4 percent gain.

HSBC cut its Melbourne forecast to a gain of between 1 per cent and 3 per cent, down from the 7 percent to 9 percent range previously tipped.

"We continue to expect a soft landing for the Australian housing market," HSBC chief economist Paul Bloxham said. 

"In our view, housing prices are unlikely to fall sharply given continued low interest rates and strong employment growth."

"Although housing price growth has slowed in both cities, the auction clearance rates suggest a more buoyant market than implied by the housing price numbers," he said in the report Australian housing: Expect a soft landing.

"Indeed, it is quite unusual for price growth to slow as much as it has in these markets and for auction clearance rates to hold at the levels maintained recently."

"A lift in household income would help to support ongoing servicing of mortgages and help secure financial stability," Fairfax Media reported Bloxham saying.

"A lift in household income growth would also drive further housing purchases, supporting housing price growth."