Canada's new mortgage rules could have a range of consequences — intended or not.
The new rules, announced Monday, are ostensibly aimed at cooling housing activity that has made homebuying virtually impossible for many in places such as Toronto and Vancouver.
They include a stress test for insured mortgages to ensure borrowers can still afford them if interest rates go up; closing a loophole that allowed foreign buyers to avoid a capital gains tax on principal residences; and a consultation with lenders to talk about risk-sharing in the mortgage market.
Such measures could ramp back sales activity, and maybe even adjust prices. But there's a host of other things that could happen once the rules come into effect.
Here are six potential outcomes from the federal government's new mortgage rules:
Reduced housing correction risk
Finance Minister Bill Morneau's new mortgage rules could "reduce the risk of a knock-on to the Canadian economy" from any possible corrections in Toronto or Vancouver, BMO economist Sal Guatieri told The Financial Post.
The Bank of Canada has long warned that interest rates could go up again — and Canadians should ensure they can still afford to pay.
Now they have to prove it to lenders.
First-time homebuyers could find things difficult
First-time homebuyers tend to be the "primary users of mortgage insurance," according to Royal Bank of Canada.
So the "stress test" could make it difficult for them to borrow as much as they'd like to. In a way that's a good thing. It means they can only borrow what they can afford. But it also means they won't have as much purchasing power in a hot market.
That said, the new rules are probably protecting them from a debt burden they can't handle.
A drop in home sales and prices
Home sales could fall as much as eight per cent in the first year after the new mortgage rules come into effect, Bloomberg reported.
Of course, that depends on what buyers do. They may decide not to buy homes at all, they could also opt to buy cheaper properties, or dig into their savings just to afford their purchases, finance department spokesman Jack Aubry told the news agency.
Meanwhile, the Bank of Canada says home sales could fall by as much as 10 per cent, while prices could drop by five per cent.
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Stricter mortgage rules could mean that borrowers start turning to "shadow-banking," according to Canaccord Genuity.
"Shadow-banking" refers to activities that happen outside traditional financial institutions. While bigger banks lend money using cash from deposits, shadow banks use money from groups of investors and aren't subject to the same scrutiny as major financial firms.
They could therefore be more likely to hand out bad loans.
Residential investment could fall as a share of the economy
Canada's economy as a whole grew by $4.2 billion from the fourth quarter of 2014 to the second quarter of 2016, according to Macquarie Research.
But residential investment increased by 3.5 times that amount ($14.7 billion) in the same time frame as housing activity skyrocketed in Vancouver and Toronto.
Watch for residential investment to decline.
Squeezing alternative lenders
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There are concerns that the new rules don't create an even playing-field for mortgage lenders outside the big banks, The Globe and Mail reported.
Alternative lenders such as Home Capital Group, which generally target riskier borrowers with lower credit scores, may find themselves scrambling for business now that mortgage clients have to qualify for loans at higher interest rates.