As home prices continue to drop in most cities, a nascent real-estate rebound in Phoenix holds lessons for the rest of the country.

This sprawling desert metropolis was one of the hardest-hit housing markets during the bust. Phoenix home prices declined 55% from 2006 through the end of 2011, and Arizona's foreclosure rate jumped to No. 3 in the nation in 2009.

Hundreds of thousands of homeowners are under water, meaning they owe more than their homes are worth.

Now real-estate economists across the country are studying an early but surprisingly broad Phoenix turnaround.