After the housing bubble burst, tens of thousands of people across the Sacramento region were trapped in homes worth less than they owed, with experts predicting it could be many years before they recovered their lost equity.
In the past six months, however, rising prices have substantially reduced negative equity in the region, real estate tracking firm Zillow said in a recent report.
Today, nearly 5,000 underwater homeowners are nearing the point where their home values exceed their loan balances.
If prices continue to rise next year, as Zillow and others predict, an increasing number of area residents will be able to sell their homes without harming their credit scores through short sales, in which lenders take less than what is owed.
Some have already taken advantage of their newfound freedom.
"It was a miracle from God," said Leisha Aitken, who cleared her loan, paid her real estate agent and walked away with money to rent an apartment after she sold her 2,100-square-foot home in Folsom's Empire Ranch in September.
Aitken, a pharmacist, found herself out of work earlier this year and struggled with her $2,800 monthly mortgage payment. She was sure she would have to do a short sale and put a major strike on her credit rating.
Then she met with agent Gillian Long, of Intero Real Estate Services' Folsom Lake office. The two decided to test the fast-changing market and push the asking price above $400,000 enough to pay off Aitken's $373,000 loan balance and cover commissions and moving expenses. The house sold quickly for $400,000, or about $191 a square foot, higher than comparable sales in recent months.
"Gillian said if I had called her a couple of months earlier, I would have had to do a short sale," said Aitken, who has a new job and is hoping to buy a condominium. "It was a good feeling to sell that house and get out. I never want another mortgage payment like that again."
A major factor in Aitken's favor was that she never sank too far underwater on her home loan. Even at the bottom of the market in January she owed only about 10 percent more than her home was worth. Thousands of others are in similar situations.
Almost half of area homeowners nearly 168,000 households remain upside-down on their mortgages to varying degrees. The total amount of negative equity in the Sacramento region is nearly $17 billion, according to Zillow.
Some homeowners are much closer to breaking the surface than others. About 53,000 homeowners across the region are underwater by 20 percent or less, Zillow estimates. About 9,000 owe less than 10 percent more than their homes are worth. And about half that number, 4,770, owe less than 5 percent more than their homes' value.
That last group is "extremely close to being in positive equity territory," said Zillow spokeswoman Camille Salama.
The Seattle-based firm, among the more conservative of forecasters, predicts home prices in the Sacramento region will increase by about 6 percent through the third quarter of 2013.
"As home values continue to rise in the Sacramento area there will be homeowners who will switch from being underwater to above water," said Svenja Gudell, Zillow senior economist.
When that happens, she said, a larger number of traditional home sales could come on the market.
In recent years, foreclosures and short sales have made up the bulk of the market, and investors have been the major buyers. Having families buy and sell homes in the traditional manner would help restore a sense of normalcy to the market, she said.
And those who have positive equity will start spending again on home upgrades, she said. "It has to do with confidence and seeing return on investment," she said.
Economist Jeffrey Michael, director of the University of the Pacific's Business Forecasting Center in Stockton, said he agrees that "the prospect of those folks (who are only slightly underwater) getting above water in the next year or two is pretty good." But he said he was skeptical they would help drive the housing market with new purchases.
Those who are newly above water will "be able to sell their house," he said, but they "won't have a ton of equity." Only those who can bring other sources of cash to the table can buy another house, he said.
Local real estate professionals take a more optimistic view.
Pat Shea, president of Lyon Real Estate in Sacramento, said he thinks there is pent-up demand from people who have been in their homes for years and need more room to accommodate growing families or less room because their children have grown up.
Many will be eager to sell, and even if they can manage only a small down payment, will look to take advantage of today's low prices and interest rates.
"You know there are some people itching to move up, down or sideways," he said. "When they can do it, they will."