The U.S. government shutdown has had an interesting side effect for Canada: It has held out the promise of lower mortgage rates, and therefore a stronger housing market.

Not that the housing market needs much help these days. Housing starts jumped 5.3 per cent in September, according to data released Tuesday by Canada Mortgage and Housing Corp., beating analysts’ estimates. All parts of the country saw rising starts except Ontario, where they fell 15.6 per cent.

September house sales in the two most closely-watched markets, Toronto and Vancouver, are up 30 per cent and 63.8 per cent respectively, according to those cities’ real estate boards (though there is reason to doubt those numbers).

But the housing market could see even more heating, thanks to the U.S. shutdown. That’s because, with the economic uncertainty, investors are flocking to bonds, driving down bond yields. Fixed-rate mortgage rates are tied to bond yields, so mortgage rates are going to come down as a result, according to RateSupermarket’s mortgage outlook panel.

Of course the flipside of lower mortgage rates is higher house prices, and Canadian municipal leaders are getting worried about the erosion of affordability, the National Post reports.

Story continues below slideshow

Loading Slideshow...
  • Calgary - $4 million

    This newly-built home just northwest of downtown Calgary not only looks cool and has excellent views of the city, it features some pretty slick amenities, such as built-in kitchen appliances, a 1,500-bottle wine cellar and five bedrooms across 5,300 square feet of living space.

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Montreal - $3.25 million

    This house in Montreal's old-money Westmount area was built in 1857 and, with its awesome wrap-around porch, may be the coolest heritage residential building for sale in Canada right now. It's actually three units -- a main house, a townhouse in the back and what's referred to as the "well house." Three bedrooms and two baths in the main house.

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • West Vancouver - $7 million

    Can you say house with a view? This four-bedroom property features not only one of the best views out of anyone's living room window in the country, it also has an outdoor pool, sunk slightly below house level, with views all its own. Four bedrooms and an elevator in this house the realtor describes as an "amazing entertainment home."

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • Vancouver - $8 million

    Located in Vancouver's (now) prestigious neighbourhood of Kerrisdale, this house is described by the realtor as "an expression of West Coast Modernism." We're not sure what that means, but this house's situation next to an elegant outdoor pool is certainly eye-catching. Four bedrooms on 5,200 square feet of living space.

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Cape St. Mary's, Nova Scotia - $3 million

    The coolest thing about this house is the location -- look at where it's sitting! Not for the faint of heart, this eight-year-old house sits perched 90 feet above the Atlantic Ocean on the Nova Scotia coast. Five bedrooms in this property that sits on 16 acres of land.

In a letter to Prime Minister Stephen Harper, Claude Dauphn, president of the Federation of Canadian Municipalities, urged the federal government to help address the shrinking supply of affordable housing.

“Housing costs and, as the Bank of Canada notes, household debt, are undermining Canadians personal financial security, while putting our national economy at risk,” Dauphin wrote.

But all bets are off if the gridlock in the U.S. Congress extends past the debt ceiling deadline on Oct. 17.

If the U.S. were to suddenly default on its debt, it would “devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression,” Bloomberg reports, citing dozens of experts.

So the good news for mortgages could be short-lived indeed.

TROUBLE IN TORONTO CONDOS?

The Toronto Star reports that some buyers of pre-construction condos are struggling to get financing to close their deals.

“Some have had to walk away from deposits worth tens of thousands of dollars. Others have been forced to borrow from family — or against their principal residence — to come up with final payments on condos that lenders are no longer keen to finance,” the newspaper reports.

It’s not just a question of lenders being more cautious in today’s housing market; tighter mortgage rules brought in by the federal government last year mean many who bought condos two or three years ago now have to make larger down payments than they bargained for, the Star reports.

“This is the hardest environment I’ve seen for borrowing money in the last 10 years,” Toronto condo developer Brad Lamb told the newspaper.