The house view of ANZ Bank economists has turned decidedly bleak on the likely depth of the price correction occurring in the Australian housing market.In a report published yesterday, senior economists Daniel Gradwell and Joanne Masters concede that they underestimated how far prices are likely to fall in response to the regulatory crackdown on lending."The housing market has slowed further than we expected, and we have materially downgraded our price outlook," they said."We now expect to see peak-to-trough price declines of around ten per cent in Sydney and Melbourne, with smaller declines elsewhere."The revised commentary from the ANZ economists brings them into line with forecasts of non-bank economists who began penning in double-digit price falls in metropolitan markets late last year.Their report also coincided with the release of quarterly ABS data, which showed that Australian house prices fell by 0.7 per cent in the March quarter.The official data confirmed anecdotal evidence that prices are coming under sustained pressure in Melbourne and Sydney, which each recorded their first negative quarterly price falls since 2012.Gradwell said the price declines were the result of tighter credit policies imposed by lenders, rather than higher interest rates."We believe the current cycle is being driven by tightening credit availability, rather than rising interest rates which have shaped previous cycles," he said."Investors in particular are finding it harder to access credit, given ongoing policy changes across the lenders."Gradwell suspects that tightened credit conditions are likely to persist until the end of the year.ANZ modelling indicates a functional relationship between falling new loan sizes and declines in house prices.According to Gradwell, a 15 per cent contraction in new loan sizes can trigger house price falls of up to ten per cent.While the ANZ economists believe the negative impact of narrowing credit supply on property prices is likely to recede towards the end of the year, potential interest rate rises in 2019 could extend declines."The downside of our economic growth profile is that we believe we are heading toward two rate hikes next year," Gradwell said."If these higher interest rates are realised, this will be another headwind to house prices - though rates will only rise if the housing market has stabilised in the first place." ANZ has forecast national house prices to decline by four per cent in 2018 and a further two per cent in the next year.Although Sydney and Melbourne are expected to account for the biggest price falls, pressure will also remain on residential property in Perth and Darwin.Canberra and Adelaide are expected to outperform other metropolitan markets because "their relative affordability should insulate them from the worst of the credit tightening".