Canada's housing market is expected to continue to cool off throughout this year and into 2009, a Scotiabank report says, bringing balance to the market for the first time in a decade.

However, the report says that a major drop in housing prices, as seen in the U.S. following the sub-prime mortgage crisis, is unlikely.

While home sales in Canada are down about 15 per cent off last year's record highs, prices have yet to dip -- in fact, they are up five per cent.

But the report will be seen as a relief to many first-time buyers. With energy prices on the rise, student loan debt at record levels and stagnant wage growth, many Canadians have been priced out of starter homes.

"All booms eventually come to an end . . . but at the same time it's good news for buyers who didn't get into the market the first time around," Adrienne Warren of Scotia Capital told CTV News.

Most of the country is already feeling the housing slowdowns.

Even Calgary's hot real estate market has cooled dramatically, down almost 40 per cent off last year. Homebuilders have taken to desperate measures to attract buyers, everything from free coffee to free cars.

Alberta is now officially a buyer's market.

"It seems to be levelling out, which I think is honestly good news for everybody," realtor Doug Hayden said. "A level market is a more balanced market."

In Ontario, home sellers are warned to tone down expectations of bidding wars over their properties.

However, the market remains strong in both Saskatchewan and Newfoundland and Labrador.

"We've seen a doubling of prices," Dale Ripplinger of the Canadian Real Estate Association said of the Regina housing market.

In Newfoundland, particularly St. John's, the strong economy has led many of those working in Western Canada to take their money back home, and buy into the housing market.

Housing starts dropping

The report says the average annual home price appreciation has also eased back into the mid-single digits after several years of double-digit growth.

The bank says cracks are also appearing on the new home front in Canada.

While housing starts in early 2008 are similar to last year, demand for new residential building permits has fallen sharply.

The demand has fallen for both single-family and multiple-unit projects.

Meanwhile, price increases for new homes are moderating while inventories of unsold new homes continue to rise, says the report.

Low risk of major correction

The report says a return to more historical norms for home price appreciation is a "welcome development."

Between 2002 and 2007, home prices in Canada appreciated at a rate of 10 per cent annually -- increases that the report calls "unsustainable."

"The faster and longer home prices climb, the greater the risk of an eventual price correction," says the report.

Economists say current market conditions show less of a downside risk than previous down-cycles in Canada over the past few decades.

"It appears to be built on a stronger economic foundation than those of the 1970s and 1980s," says the report.

Economists list five reasons why there is a low risk of a major correction:

• Home prices in Canada are not substantially overvalued
• There is still little evidence of widespread speculative home buying that often accompanies the late stages of a housing boom.
• Canada's real estate market is not overbuilt.
• Households, for their part, are not overleveraged.
• Overall mortgage quality is still sound.

"At the end of the day, we predict a soft landing for the Canadian housing market, with somewhat lower sales and construction, and a period of relatively flat inflation-adjusted home prices."

With a report from CTV's Lisa LaFlamme