We're Buying a house in Calgary ;) Buh-bye Saskatoon

I don’t even remember how this story began, but I think a few things just slowly crept up in my mind.

We can afford a house, and homes outside Calgary are comparable in price to decent areas in Saskatoon.
Although the Tiny House is based and redpilled it literally can only fit one and a half kids, and I already have one so I can only fit half a kid, which isn’t nice for the kid.
The Debtmaxxxing angle. I will explore this angle in the future in more detail, but in essence I strongly believe in long term inflation of the Canadian Dollar such that any debt that I take on denominated in CAD will be nearly wiped out over enough time.
I can qualify for a house now but probably not next year, so if I’m going to buy I need to buy soon. I won’t go into detail on this but essentially I’ve been working for a few years which looks great on a loan application but I will probably switch my sitch soon which would muck this up.
The Canadian Government will likely begin paying people’s mortgages or otherwise heavily subsidizing them. Which would be free money.

In between changing diapers and soothing the baby the path forward is clear, but I want to take you on an aside to opine on my thoughts as I look at the market.

Buying is always competing with renting, but maybe less-so in Canada than elsewhere at least for single family homes. For the record I think that renting should be a perfectly respectable option for Canadian families. However in practice because it’s so easy to buy a home most people do! All you need to buy a house is work a job for 2-3 years and not tell your boss to suck it, then you need to come up with 15-40k as down payment. The people who can’t do this in 2023 are too antisocial or impulsive. So if you’re living in a long term rental you’re not in a nice neighbourhood, you’re in a depressed crime-ridden area with antisocial impulsive people. Which is a terrible environment for kids.

Keep a job for 2-3 years and save up a 15-40k down payment

I have been expecting a big drop in Canadian housing prices for many years but I have seen the light! You see many people when they buy a house they stress and fight to pay off their debt. Not realizing that a mortgage is the lowest interest rate loan they will ever recieve. Why pay it off? Why not just treat it like a rental but without the downsides of renting

A mortgage is the lowest interest rate loan you will ever recieve

But Liam if you never heckin' pay down your loanerino you’ll never own your own home. That’s fine, I don’t really want to own a rotting 45 year old asbestos shack in the frigid wasteland known as Canada, especially not for 300k+. To top it off many owners^tm don’t really own their own homes^tm. If you miss too many payments on a mortgage you default on the loan meaning the bank can repossess your house. Don’t worry though you’ll get your equity back, right? There are also multitudes of other claimants to you property like the municipality utilities etc. I’m glad that people feel pride in homeownership but it’s not an airtight arrangement, especially until you’re done paying your mortgage which for nearly anyone would be over a decade.

Let’s even say that you do want to own your house for that pride of ownership and sense of security. Then it does make sense to pay down your mortgage. Right? Right?

Well maybe, that actually depends on the interest rate on your loan. This is complicated by the recent rise in rates but up until then I would have to emphatically say that paying down your mortgage was a distinctly bad idea. Your mortgage has an interest rate which like I mentioned is probably the lowest one you will ever recieve. If there is any investment or other loan that has a higher rate (APR) it does not make sense to “pay down your house”. As of a few years ago everyone had something that would have paid better than their mortgage. I know this because there are stocks that were paying 5% or more dividends yearly. It wasn’t uncommon to have a 2-3% mortgage rate on your home, which if you invested your excess in the aformentioned stocks you would have made 2-3% above and beyond your mortage interest as just spare cash to reinvest. Well rates are 6% now are there stocks that pay 8-9% dividends? Yes there are! Everyone should do this, but you don’t even need to buy stocks there are probably things in your life that are specific to you that you could make a 10% compounding return on if you think long and hard. Maybe you have credit card debt to pay off, maybe you could invest in your business and make a return on that, maybe you could buy a kilo of fentanyl and sell it behind your local YMCA I don’t care, trying to pay down your house doesn’t make sense. Remember how I said that if you default on your loan the bank is allowed to repossess your house. Well guess what they can’t repossess your TFSA or RRSP stock accounts becuase the loan wasn’t underwritten with them. You can still save up your stocks and when you have enough you could not renew your mortgage and just pay off the bank, but in the intervening decade they don’t have access to that money.

So we’re buying a house with the minimum down payment and longest possible amortization. ‘But, but, but, half of your payment is interest, you’re going to be paying hundreds of thousands of dollars to the bank in interest’.

We’ll get to the interest in a second. I want to address this by looking at how a business handles it’s accounting. They break down their finances into a balance sheet, and an income statement. The balance sheet lists things you own and owe, which equals the owners equity. For a person this might be like the value of their house and their mortgage equaling their net worth. The income statement shows how much stuff the company sold and it subtracts different types of expenses until you arrive at the earnings which the company could choose to reinvest or pay as dividends. For a person this is like your monthly budget, you make a certain number at your work but you subtract taxes, dues, rent, food, insurance, vacation savings etc. and you’re left with a small number at the end. Alot of people when it comes to housing focus alot on the balance sheet side of things, how much their home is worth and how much it will appreciate. However the income side of things is critically important as well especially in a changing interest rate environment. By maximizing my mortgage its worse for my balance sheet (I’ll have more debt/equity) but it is better for my income statement; I don’t have as large of a fixed expense that I have to pay every month. With that extra money I can save a bit, go to restaurants, take vacations, whatever!.

Don’t you have to pay all that interest eventually? Why not just buckle down Bucko and pay it off. Oh I’ll pay it off.

Inflation is Canada is officially about 6% anually which is a boldfaced lie it’s honestly much closer to 15%. But lets take the governments numbers. Let’s meet in the middle with 10%. After 10 years of 10% annual inflation the the dollar will have the buying power of about 39 cents today a little less than half. In 15 years buying power is just under a quarter. In 20 it is under 15 cents. Canada is not about to adopt hard currency, we’re more likely to go the other way so taking a fixed long term loan with this much inflation amounts to a substantial discount in the long term. As long as you can reasonably afford the mortgage it makes sense to do this.

A 300k mortgage with a long amortization at 6% may require you to pay approximately 600k over the life of the loan. In 25 years this 600k has the buying power of 90k today. It isn’t this sweet in real life but its food for thought.

So what will happen with the Tiny House? Am I giving up? Well looking at some of these homes what is becoming obvious is that space is at a premium, but I already own a heated and air conditioned mobile space that hooks up to an RV plug! So we are looking for a place that has an RV spot which is fairly common and we will use the tiny house as our home office and guest house. Especially with kids running around the house it will be nice for Kerry to have a quite place to work.

We’ll keep you guys updated on how things develop, I have alot more to say about this topic but I’ll save that for future articles.