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Overseas Banks publish exposure figures in US sub-prime mortgage sector

Abstract : Foreclosures are the fuel that will lead to further real estate growth points out Jeff Adams.

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 US sub-prime mortgage market you realise that the global economy is now here to stay and that the US economy is still at the centre of the world.

The reason the activities of a UK bank are important for the US sub-prime mortgage market and foreclosures is because it is the clearest indication to date of the interconnectedness of markets and the value of US 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 US 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 generalisation and just as there is no really ‘average’ foreclosure any more than there is an ‘average’ real estate investor. However generalisations 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 practises 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 US 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 US 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.