San Bernardino May Not Need Eminent Domain Fix: Report

With prices gaining in San Bernardino County, ""Clear Capital"":http://www.clearcapital.com/ found that the solution to the area's problem of negative equity may be solved with time.

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San Bernardino County has become the center of debate following the creation of a Joint Powers Authority to explore a controversial use of eminent domain. The proposed use of eminent domain involves seizing underwater mortgages to have them refinanced with a new mortgage reflecting the property's current value.

According to Clear Capital, the area is seeing a positive trend in home prices, with fair market prices outperforming REO prices by 4.2 percentage points on a quarterly, median price-per-square-foot basis.

While this positive shift isn't enough to lift the underwater homeowners out of water, Clear Capital said improvements in San Bernardino might signal that a recovery is under way.

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Drawing a comparison between San Bernardino and hard-hit Maricopa County in Arizona, Clear Capital said the two counties are moving in a parallel path. Maricopa County, which is where the Phoenix metro is located, has recently been gaining recognition for the strength of its recovery.

However, just like San Bernardino, Maricopa County had a highly distressed market that led to a dramatic fall in prices. In addition, both counties over the last 3 years have seen prices rise above their low points, with San Bernardino up 14.6 percent and Maricopa up 19.2 percent.

Over the last year, both markets have seen prices move in a positive direction, although Maricopa's 25 percent growth far exceeds San Bernardino's 4.7 percent increase.

On a quarterly basis, Clear Capital found that Maricopa has increased 6.8 percent, and San Bernardino is up 1.2 percent.

Both have also seen a decrease in REO saturation, with San Bernardino's REO sales as a percentage of all sales nearly cut in half, while Maricopa's REO saturation rate has been reduced 66.6 percent.

While the two counties do have their differences, Clear Capital stated they appear to be on similar trajectories in terms of healing from severe price declines and high REO saturation rates.

Clear Capital concluded that San Bernardino has potential to continue in the positive direction, and thus may be able to alleviate some of the negative equity homeowners are facing without the use of eminent domain.