A couple of random numbers in the papers this past week got me thinking that each of us effectively is a shareholder of Fannie Mae and Freddie Mac to the tune of between $17,000 and $35,000 per person.   That’s the rough per capita amount of what the Freddie/Fannie subsidy will ultimately be from the Treasury (between $500 billion and $1 trillion).   How does that final turn of the mortgage screw feel?   Just as important, how might this situation impact housing over the next several decades?

As an industry, Fannie, Freddie, plus their FHA and VA cousins, have essentially been the residential mortgage market since the meltdown in 2008.   The business new home builders have had has been primarily financed, at least on an end loan basis, by them.   So, I guess, some kind of thank you is in order.

However, as individual tax payers, was the juice really worth the squeeze?   The burn-off of the lending problems for the last decade has created ongoing default losses that seemingly have no end.   That’s why the guesses of ultimate cost are pretty broad.   But was it worth $100k plus for a family of four to support our national addiction to bigger and fancier houses sold to nearly 70% of our households?

As an individual who has made his career in this industry, I personally don’t think so.

The second piece of data was on the average size of a new home in the US.   Back in 1970 it was 1400 sf.   In 2006 it was 2349 sf.   That’s 67% bigger, even though the average family size is dropping.   I know that in the past year or two, the average house size has peeled back some, but did we really need all of that extra square footage we created back in the day?

Finally, I have been pondering some of your comments back to me on the recent articles regarding multigenerational housing and the triple wave of graying boomers, emerging echo boomers, and young Hispanic and Asian households that will be dominating the demographic landscape for the next several decades. 

They all will need places to live, whether they own or rent.

I am guessing that the government wants desperately to get out of the home finance business and ultimately will.   Either we, as taxpayers, or the bond vigilantes at PIMCO or the Central Bank of China will force the hand.  

What will the new residential finance environment look like for all of those people who will need the places to live?

I am thinking that mortgage credit will be more tightly underwritten (higher down payments, more intense credit scrutiny, etc.).   It will be significantly more expensive, as the private market begins to operate with discipline after the government phases out of its major current involvement.   Fewer people will be able to be owners.   More will have to be renters, at least for a while.   The foreclosure wave will force current owners into rental status as their credit is impaired for a while, too.

This should have a couple of effects.   Fewer new homes per capita probably will be built for a while as people have to build or rebuild real down payments and real credit records instead.   New houses will also tend toward smaller (if a true single family is to live there) and larger (if designed for multigenerational use or to take in renters to help offset the mortgage payment). 

Existing homes may be carved up to be two or three family dwellings, with owners renting out parts of the home to either the elderly needing a smaller place to live or some of the younger singles or couples needing a place to start.

In the case of aging parents or boomerang kids, the rent is emotional.

It may look more like the housing model in first half of the 20^th century, before the GI bill started the post World War II housing boom.   More homes may be occupied by their owners, plus some boarders, too, for a while.  

This could be a boon to remodelers, as Phil Barbay, a remodeler outside of Philly and former colleague at Realen Homes, noted in his commentary on my last article.  People will tend to renovate their existing homes more to take advantage of this new situation.

Heaven knows we created a lot of extra square footage over the past 40 years in places that are now mature suburbs, where schools are good, and where people would love to live.   We tend to think of density in terms of houses per acre rather than people per acre.   Rearranging space in houses that may be bigger than current owners really need might be a way to partially handle the oncoming waves in a smart-growth way.   We will just have more people per existing home.

If inflation gets spooked up, like most believe, and if taxes, particularly property taxes, have to rise to cover the debts that local and state governments have incurred, I think that there will be a trend for people to stay put and try to get more income per house, too.   If salaries may not be rising for a while, putting renters into the surplus space is a logical solution for generating more income for the homeowner.  

It provides an alternative, not a replacement, to always having to handle growth on the edge, which is a pretty green idea, to think of it.

So, as we emerge from the Great Recession as the unwitting owners of Freddie and Fannie in their old form, we may find that homeowners really can leverage their ownership of homes, both new and existing, by thinking beyond the traditional single family model.   In that new model, homeowners actually do become a new form of residential finance for the some of the coming waves, who will have a rental option in the extra space we created in the recent past and might be creating in multigenerational forms of new housing.

We become Fannie US.