HSBC has cut its house price forecasts for Sydney and Melbourne due to faster-than-expected cooling in the country's two largest cities.

Tighter prudential settings, a boost in housing supply and a pullback in foreign demand caused the local arm of the global investment bank to cut its Sydney outlook this year to a fall of between 3 per cent and 5 per cent this year, compared with a gain of between 2 and 4 per cent it last predicted in December.

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

HSBC has cut its house price forecasts for Sydney and Melbourne due to faster-than-expected cooling in the country's two largest cities. Jim Rice JRZ

"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."

HSBC is not the only organisation to change its mind in the face of changed facts. Earlier this month consultancy SQM Research cut its Sydney forecast to a range or between -4 per cent and 0 per cent this year, having tipped a gain of between 4 and 8 per cent as recently as October, citing an unwinding in the previously super-charged market that was becoming apparent in falling auction clearance rates, lower asking prices and lengthening days on market.