While the federal government takes steps to assess whether it needs to do more to cool Canada’s housing markets,  the country’s mortgage industry warns it would be “tragic” to slow housing activity in the country.

In a Tuesday report, the Mortgage Professionals of Canada said that another clampdown on mortgage lending rules in Canada could unnecessarily cause housing prices and demand to plummet – and even “bring consequent economic damage” to the country.

“Now that the energy sector is no longer a major economic driver, a healthy housing sector is even more essential,” Will Dunning, chief economist with Mortgage Professionals Canada, said in a statement.

“It would be tragic to unnecessarily impair this key economic force. Such errors have the potential to cause a sharp downward adjustment of prices.”

Dunning added there is insufficient proof that a housing bubble exists, saying there’s no evidence of a “speculative mindset” among Canadian homebuyers.

Earlier this month, Bank of Canada Governor Stephen Poloz said the threat of a housing price correction in Canada’s hottest markets, Toronto and Vancouver, is rising – mainly because prospective homebuyers are counting on endlessly soaring home prices.

Finance Minister Bill Morneau announced last week that Ottawa was forming a working group with provincial representatives from Ontario and B.C., as well as municipal officials from Vancouver and Toronto, to study Canada’s booming housing market.

Morneau said the group would evaluate whether further steps are needed to protect borrowers and lenders to help maintain a stable housing market, though he didn’t provide a timeline on when proposals would be released.

Since 2008, Canada has tightened mortgage regulations five times, shortening the length of loans and hiking minimum down payment rules.