The Competition Bureau's attempt to break up what it calls "anti-competitive" practices of the Canadian Real Estate Association could heat up the housing market even more because it will lead to lower commissions, says a Bay St. economist.

"The Competition Bureau's efforts toward opening up the Multiple Listing Service to greater competition could well ultimately serve to negate the impact of potential mortgage rule changes unless they are more material than debated," says Derek Holt, an economist with the Bank of Nova Scotia.

The federal government has been monitoring the housing market with an eye toward tightening rules. Suggestions have ranged from increasing the minimum downpayment on a home covered by mortgage default insurance to 10%, to lowering the amortization period to 25 years to making people qualify based on potential higher rates.

Meanwhile, the Competition Bureau applied to the Competition Tribunal this week to amend CREA's current practices. The case revolves around the MLS system, which is owned by CREA and accounts for about 90% of real estate transactions in Canada. The Bureau wants to see CREA allow brokers to use the MLS to offer limited service, something that is expected to lead to lower fees.

"The potential savings are large," says Mr. Holt. "We plot the commissions paid against the average Canadian resale price of $345,000 on a sliding scale from the upper bound of 6% through the more typical 4%-5% levels and down to discount brokerage fees.

For example, a typical 5% commission rate results in a cheque being cut for $17,250 to cover real estate commissions. Compare that to the tiny discount broker segment that would likely explode as per the U.S. experience, which, for the same transaction, would result in about $1,500 in commissions.

Full service at 5% versus discount rates results in a difference of $15,750 in pocketed savings. The average commission rate would also fall materially, even if not to the discount floor."

Mr. Holt contends even if there are changes to mortgage requirements, buying conditions in Canada could actually become easier over the next one to two years because of the changes to commission.

"The Bank of Canada cannot rely upon the regulatory apparatus to cool what we think is a house price bubble, even if the Canadian consensus is as unconvinced about its existence as the U.S. consensus once was," Mr. Holt said.

He said an increase in the downpayment from 5% to 10% will be more than offset by the changes in the commission rules.

"On the same average resale price, this could be fully or significantly paid for via lower commissions should the Competition Bureau be successful in its efforts. Thus, through the interplay between potential shifts in mortgage rules and the Competition Bureau's challenge, Ottawa is likely to, at worst, leave homebuying incentives on neutral terms, or could instead drive even more stimulative terms given a low probability of changes to mortgage rules," Mr. Holt said.

"Now, of course, the ultimate savings from lower commissions depend upon price incidence effects as others potentially swoop in to eat the lunch left behind by real estate agents. Maybe it's just a one-off adjustment that will drive home prices even higher if people take the pocketed savings and spend more than already record prices to buy a home.

Or maybe they'll spend the pocketed difference on something else, though an offset at the macro level is that it means less spending for those earning lower commissions. These are just some of the many market adjustments that may occur."