A growing population will not be enough to stave off a fall of up to 7 per cent in house prices over the next 18 months warns investment bank Citi.

In a detailed report, analysts Paul Brenna, Josh Williamson and Vivian Jang predict that moves by the Australian Prudential Regulation Authority (APRA) to cool housing would be more effective than previous attempts and would compound other factors in the market.

They conclude that a "partial correction" is likely for Sydney and Melbourne and that the unwinding of the housing boom could pose a wider challenge for the economy.

"Given the stretched house price valuations in Sydney and Melbourne some correction would seem likely as supply continues to catch up to demand," the report says, forecasting prices will fall by about 7 per cent through 2018.