Canada's housing market conditions have cooled in the first quarter of the year, but it continues to outperform other developed nations, according to a report released Wednesday by Canadian bank Scotiabank.

The country's inflation-adjusted average house price fell 2 percent on a year-on-year basis in the first quarter, said the Global Real Estate Trends report released by the Scotiabank.

"Price trends are relatively steady in the majority of local markets, though a few, notably Toronto, continue to report strong appreciation," said Adrienne Warren, Senior Economist of Scotiabank.

Despite historically low borrowing costs, demand has been tempered by moderate income growth and tighter mortgage insurance rules. Meanwhile, supply conditions are becoming more balanced in most parts of the country, the report said.

"We anticipate fairly flat sales and average prices over the latter half of the year," said the report.

The report said that many residential property markets around the world remain under considerable stress, and home prices, adjusted for inflation, declined on a year-over-year basis in the first quarter of 2012 in the majority of international markets tracked in the report.

"The intensifying euro zone debt crisis, increasing financial market strains and moderating global growth suggest there is more downside risk to property prices in the near-term," said Warren.

"Eventually, however, improved housing affordability and pent-up demand will put many of these markets on a firmer footing," she said.