Six months ago, some real estate experts predicted home prices in the Sacramento area would keep falling, weighed down by thousands of foreclosures.
Economists at online tracker Zillow, for example, said in April that prices would continue to drop this year and that there was "no sign of a bottom" for the Sacramento market.
Instead, the opposite happened. Prices made a U-turn and headed up. Today, Realtor.com calls Sacramento the nation's No. 2 "turnaround town," just behind Oakland. Five other California cities, from San Francisco to Bakersfield, also made the list.
So what turned a real estate dog into a sudden darling?
In essence, area home prices dropped so low that large numbers of investors swooped in to grab bargains. Some would-be homeowners decided to try their luck, too.
The ramped-up activity has driven prices higher and reduced the number of homes on the market, which in turn creates more upward pressure.
Last week, Santa Ana-based data provider CoreLogic reported a nearly 7 percent year-over-year gain in Sacramento home values in September. The Sacramento region's largest real estate brokerage, Lyon Real Estate, said the Corelogic numbers understate reality.
Lyon's data, supplied by its affiliate TrendGraphix, shows prices have risen by double digits since the beginning of the year. The region's median sales price jumped from $180,000 in January to $219,000 in October a 21 percent increase, Lyon said in a news release.
Jeffrey Michael, director of the Business Forecasting Center at the University of the Pacific in Stockton, said houses in Sacramento may still be undervalued, especially investment properties.
"We've been in a situation where paying cash (for a house) and renting it out was generating higher yields than you could find in other investments, which suggests housing is underpriced," Michael said.
Even Zillow, formerly so bearish on the Sacramento region, forecasts that home prices will rise almost 6 percent by the end of the third quarter next year.
That's more than three times Zillow's predicted national growth average of 1.7 percent.
What's unclear, however, is whether Sacramento can sustain its newfound status as one of the nation's most improved real estate markets.
Investors have been the main players in the local market turnaround. But Michael warned that demand from that group can carry prices only so far.
"As prices appreciate, the return on investment declines from an investor standpoint," he said.
Whether demand from traditional homebuyers is sufficient to sustain continued price increases is uncertain, he said.
Over the long term, job growth is the key.
Lyon President Pat Shea, however, said he believes demand from traditional homebuyers is gathering steam.
Entry-level buyers have been competing with investors, boosting prices at the lower end of the market. Continued growth depends on move-up buyers feeling confident and increasing activity in the middle and upper segments, Shea said.
He said he expects interest rates to stay at historically low levels in 2013, continuing to fuel demand.
"I think that for the remainder of this year and 2013, we'll see a lot of what we've seen already," Shea said.
While economists agree that the gains could continue into next year, they warn against thinking it's the start of another bona fide housing boom.
"It's good news, but it doesn't mean we're back to 2005," said Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA.
Foreclosed homes have been snapped up by investors and haven't overwhelmed the Sacramento market, as some feared, he said. But the overall economy remains sluggish, Gabriel noted.
The Federal Reserve is helping to prop up the housing market by buying billions of dollars in mortgage-backed securities. One goal is to keep interest rates low for months to come.
"The reason interest rates are so low is the economy overall is perceived as being relatively weak," Gabriel said.
Struggling economies in Europe and Asia still loom as a potential threat to the economy, as does the "fiscal cliff" awaiting Jan. 1, when billions of dollars in federal spending and tax cuts are set to start expiring unless Congress and the Obama administration can reach an agreement first.