The moment Barclays, a UK bank with a banking tradition stretching back to 1896, has to publish an extraordinary public statement adding greater transparency to its exposure in the U.S. sub-prime mortgage market you realize that the global economy is now here to stay and that the U.S. economy is still at the centre of the world.

The reason the activities of a UK bank are important for the U.S. sub-prime mortgage market and foreclosures is because it is the clearest indication to date of the interconnectedness of markets and the value of U.S. homes to the economy not just of our country but, as it turns out, the rest of the world.

In terms of foreclosures this means that the world’s interest in the U.S. property market is creating opportunities which at the moment are not reflected by the current state of the market and this is exactly the point where the smart money gets in and makes a killing.

Foreclosures, the seeming real estate crisis aside, represent a sizeable opportunity for those on the look out for a real estate investment bargain as they are always off-loaded below market value, can be bargained down further by someone with the right persuasive skill and often ready-made equity already built-in.

I understand this is a generalization and just as there is no really ‘average’ foreclosure any more than there is an ‘average’ real estate investor. However generalizations are useful as they allow us to focus away from the details long enough to see the bigger picture and the bigger picture looks a lot better than most people would expect.

Let’s take a look at the reasons why. The banking crisis in the sub-prime mortgage lending market was sparked off by a market imbalance and rising interest rates which, in turn, led to an examination of indiscriminate lending practices and a questioning of the degree of exposure of banks in these sub-prime mortgage loans which then closed the loop as lenders started to crack down on late payments by borrowers and those who were beginning to default and this, then, became a self-fulfilling prophesy.

In truth there is continued interest in the U.S. housing market and the foreclosures coming to the market are releasing housing stock which, if bought now, at competitive prices has the potential to hugely appreciate in price creating a new level of wealth for those coming into the market either as home owners or real estate investors.

This means that even as the U.S. real estate market is dipping now, the foreclosures we are seeing are providing the springboard that will make it rise again generating, in the process, more wealth for those who were perceptive enough to see it and take advantage of the opportunities offered.

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The macro-economics of the U.S. and, quite possibly, the world are reflected in the reviving micro-economies of the States of Florida and Texas. The diversity of properties and property-types and the demand for properties in both these States makes them prime examples of what will happen with the rest of the U.S.

Both Florida and Texas have defied the usual boom-and-bust cycle of real estate. Florida experienced a slump as early as 2005 because of huge appreciation of house prices which led to a correction and Texas has got off slightly with perhaps the softest of soft landings in its real estate prices and demand never, appreciably, dipping very much at all.

The reason both these States have got off so lightly despite having lenders exposed to the sub-prime mortgage market which has led to foreclosures is because they also manage to meet the criteria for recovery:

1. A correction that does not crash the market – real estate prices in Florida dropped and in Texas there has been a correction but in neither State was the drop so sudden and so dramatic as to crash the real estate economy and stop demand.

2. Steady development – Florida is currently awaiting the completion of a new international airport in Panama City which will greatly increase the number of people coming into the State and the demand on its housing. Texas is undergoing steady development of its lakefront and surf properties as well as its recreational properties which means that investors are constantly looking at Texas Real Estate as a means of making good buys with their money.

3. Fresh supply of properties- finally both Florida and Texas have seen no appreciable decrease in new properties hitting the market. Whether it’s in the form of brand new housing or property developments or value properties coming in as the result of foreclosures both States show a healthy base of new properties and this is vital as it sis these which drive the overall engine of the real estate economy by attracting an influx of new buyers.

Summarizing, the micro-economies of Florida and Texas indicate that provided the three conditions I have just covered are adequately met then there is no reason to fear that the housing market slump is going to last any time at all. Recovery is probably just around the corner and as the pace of development continues house prices will continue to appreciate and this will offer both growth and the opportunity for growth which drive markets in an upward trajectory, attract first time buyers and investors and do much to inject the needed lifeblood of the local economy.

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America is a place where consumer confidence, that fickle, ethereal almost, indicator of a market’s health, is closely linked to natural disasters and national crises.

Let’s look at 9/11 for example. Consumer confidence right across the US plummeted the day after the attacks and took more than eighteen months to recover, a period during which, much of the economy was driven through tourism and foreign income from Britain and Europe.

Hurricane Katrina had the same effect, though obviously, not quite to the same degree. Days after it had struck New Orleans and the surrounding area and the magnitude of the disaster became known it caused consumer confidence to plummet to new lows and it took months to recover (and this time there were no foreign tourists in sizeable numbers coming to help us with their money).

The foreclosure crisis hitting the US sub-prime sector of the market is having exactly the same effect. Across the US consumer confidence, at the beginning of the year, appeared to have taken a dip which only became more pronounced as the months rolled on and rumours if foreclosures turned into hard figures and public sob stories which were hard to refute and helped feed a certain sense of mass hysteria.

Why are we examining all this right now? Because, as the year is finally winding down and the dust begins to settle we have, again, a picking up of sorts as Christmas, a trading time that’s frightfully important to traders, banks, money institutions, companies and the global economy, begins to get under way.

The question here is if the number of foreclosures continues to rise will it dampen down the festive spirit and affect consumer confidence? Ok, as an expert in real estate and foreclosures I can say with a certain amount of confidence that this will really depends on two things, one factual and one not.

The factual thing is that consumer confidence will really depend on whether foreclosures rise and do not get sold off in which case lenders will panic, further clump down on credit during a very crucial trading period and that will, inevitably, affect the ability of consumers to buy anything from Christmas lights to foreclosed homes being sold at bargain prices.

The other thing it will depend on is entirely fictitious but totally real in its effects and it is the perception of what is happening as it is formed, shaped and fuelled by popular press stories and sensationalist journalism. If these stories continue to appear, particularly, at the wrong time, the impression they help form is just as real as the reality.

The result is that the market will then shrink as consumer confidence takes a tumble and foreclosures will increase indeed.

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