Conditions in Canada's housing market have cooled in recent months, but the country continues to outperform other developed nations, according to a new Scotiabank real estate report.

The latest Scotiabank Global Real Estate Trends report finds that national average home price fell by 1.6 per cent in the first quarter of 2012 compared to the same period of 2011. (The prices were adjusted to account for inflation.)

While the last quarter of 2011 saw a 1.3 per cent year-over-year gain in house prices, conditions have now cooled. That's because of slower income growth, tighter mortgage insurance rules, and more houses going up for sale in most parts of the country, says Scotiabank economist Adrienne Warren.

"Price trends are relatively steady in the majority of local markets, though a few, notably Toronto, continue to report strong appreciation," Warren writes in the report, released Wednesday.

The report forecasts that the number of sales and average house prices will be flat in the second half of 2012.

Nevertheless, Canada's housing market is doing much better compared to other developed nations, particularly those in recession-plagued European countries.

House prices in Spain, for example, which is in the midst of a housing crash, fell 9.1 per cent year-over-year.

"With unemployment (in Spain) approaching a record 25 per cent and a massive glut of unsold homes, it appears prices have further to fall," the report notes.

Ireland, which is also cleaning up a banking mess, saw house prices fall a whopping 18.9 per cent in the first quarter of 2012 compared to a year before.

The cumulative decline in house prices from the peak in early 2007 has reached a staggering 50 per cent in Ireland. The proportion of mortgages that are in arrears in Ireland is now double the comparable U.S. rate.

Switzerland is the only European market to report appreciating home prices in early 2012, but home ownership there is low, at around 40 per cent.

The battered U.S. housing market is finally showing increasing signs of stabilizing, the report says. Home price declines slowed to just 3 per cent year over year in Q1 following an 8 per cent drop in the second half of 2011.

"Housing affordability is near record highs, lending conditions are beginning to ease and household formation has picked up sharply," the report says.

The Canadian Real Estate Association's latest figures on Canada's housing market are due Friday. In April, CREA reported that the average home price in Canada was up 0.9 per cent from a year ago, at $375,810. Sales on a year-over-year basis were up 11.5 per cent from a year ago, CREA said.

The continued strength in Canada's housing market has some economists worried. The Bank of Canada and federal Finance Minister Jim Flaherty recently stepped up their warnings to Canadians to be cautious about borrowing on real estate.

They warned that low interest rates won't continue forever and that some homeowners who used those low rates to borrow more than they could otherwise afford will be vulnerable in the event of a housing market turnaround.