House prices are set to fall further but a property crash is unlikely, an economist says in predicting declines in Sydney and Melbourne will reach 20 per cent.

AMP Capital has downgraded its outlook for home prices, particularly in the previous ‘boom time’ cities of Sydney and Melbourne.

Chief economist Shane Oliver says a property crash – involving national average prices falling by 20 per cent or more – remains unlikely.

‘However, the risk of a crash cannot be ignored given the danger that banks may overreact and become too tight and that investors decide to exit in the face of falling returns, low yields and possible changes to negative gearing and capital gains tax,’ he said in a new research note.

AMP now expects national average prices to fall nearly 10 per cent out to 2020, having previously forecast a five per cent decline.

Dr Oliver said property prices in Sydney and Melbourne cities are likely to experience top-to-bottom falls of about 20 per cent, which would take average prices back to levels of the first half of 2015.

AMP had previously forecast a 15 per cent decline from the peaks to troughs in those cities.

Dr Oliver pointed to a tightening in credit conditions and bank lending standards amid pressure from regulators, supply rises and the risk of a ‘negative feedback loop’ from falling prices developing.

He said home prices in Perth and Darwin are either at or close to the bottom after falling back to the levels of more than a decade ago.

He said prices are likely to perform a lot better in Adelaide, Brisbane, Canberra and Hobart along with regional centres as they have not seen anything like the boom in Sydney and Melbourne.

But there would still be some impact from tighter credit conditions, he added.