The city's biggest gain since May 2011 – when listings surged 50 per cent in the wake of a winding back of first home buyer grants and the Reserve Bank's raising of rates the previous year – was a sign of a deteriorating market, SQM managing director Louis Christopher said.

"There's been a rampant acceleration in the amount of stock on the market in Melbourne just in the last few months," he said. "The market is turning and getting pretty nasty in Melbourne."

Mr Christopher said the fast-changing Melbourne and Sydney markets had prompted him to revise the forecasts he last made in May, downgrading his expectations for the two markets that gained the most in the six-year housing boom.

"Even on our revision we have underestimated this downturn," he said.

"I honestly believed the regulators were going to step in this year to try to stimulate demand and this has not happened. We've been wrong on that front and that affects our forecasts big-time for Sydney and Melbourne."

He declined to reveal his new forecast, saying he would do so next week, but said AMP Capital economist Shane Oliver, who last month predicted a peak-to-trough decline of 20 per cent for the two largest cities, was "very much in the ballpark".

The resetting of expectations come as analysts reassess the effect of the credit-induced slowdown that strengthened last month, when Sydney dwelling values fell 7.4 per cent, their largest annual decline since 1990.

But even their worsened outlook indicated no severe problem, the Macquarie Securities economists said.

"We feel the decline under way is a housing correction rather than being the result of a macro correction," they said.

"Falls have so far been orderly, with little evidence of distressed selling, even among investors affected by changes in prudential policy and lending standards. A disorderly housing price correction is unlikely, absent a major global economic downturn."