The real estate rebound that lifted property values around the world is losing momentum, Bank of Nova Scotia says in a new report.

Housing demand and prices slipped in the second quarter, senior economist Adrienne Warne wrote in the bank's Global Real Estate Trends Report Tuesday. The market was sideswiped by moderating global growth, volatility in financial markets and weak job creation.

“Global real estate markets entered 2010 with a renewed sense of optimism, piggybacking on the broader economic recovery under way,” she wrote. “Housing demand and pricing improved in the first quarter of the year in the majority of the advanced nations we track, benefitting from ultra-low interest rates, improved affordability, and in some cases, government purchase incentives.”

Still, gains were made. Australia and Canada saw double-digit gains in inflation adjusted prices, “mirroring their relatively more favourable employment and lending conditions.”

Sweden and Switzerland posted increases, while in Britain home prices moved back into positive year-over- year territory for the first time in two years. The U.S. and French markets reported marginal declines.

Spain and Ireland saw home prices fall year over year in the quarter, with high inventories and high unemployment hurting the market. Japan, which has been in a 20-year slump, also saw prices slip.

“The recent slowdown has been most dramatic in Canada,” the report states. “Average home prices in Q2 were up just 6.8 per cent year-over-year, compared with 16.6 per cent year-over-year in Q1. Sales, while still at a high level, have trended steadily lower alongside reduced affordability and exhausted pent-up demand.”

She expects Canadian prices to be “roughly flat” for the rest of the year.

“In some of the hardest-hit markets facing ongoing deleveraging by households and governments, the U.S., the U.K., Spain and Ireland included, Scotia Economics continues to anticipate a multi-year period of adjustment,” the report stated. “In higher growth nations such as Canada and Australia, housing activity should prove much more subdued than in recent years.”

Canadian sellers have been asking for more money than new builders, the report added.

Between 2000 and the first half of 2010, the average cost of a new home increased by just over 50 per cent.

“Over the same period, the average price of a resale home more than doubled,” the report said. “Traditionally, the demand and pricing for new homes mirror, but with a lag, trends in the resale market. When resale housing selection is limited, and/or prices are increasing sharply, buyers are more likely to consider a new home purchase.”

The reason? The report pointed to “a shortage of resale listings relative to demand, a boom in renovation activity that has added value to the existing stock of housing, and rising urban land values.”

“The divergence in new and resale home prices is seen in most markets across the country, but to varying degrees,” the report said.

“The biggest gap has opened up in British Columbia, where the lack of developable land in its largest city is a major contributor to its record high home prices. On the other hand, new home prices have largely tracked resale prices in Alberta and Saskatchewan, where a massive influx of population attracted to the region's booming economy, and the inherent lag in adding sufficient new housing stock, fuelled across-the-board appreciation.”