In the current market lots of homeowners are upside down in their homes.  They have to ask themselves do we want to sell our house at the current market value and lose our equity, or even have to do a short sale just to get out of the situation, can they rent the house for a while until the market comes back, or should they just sit tight and hold on to their home until the market improves. 

The answer to these questions is "It depends on the situation."  For the homeowner who is farily comfortable financially and has no real pressing need to move, it may be the best course of action to do nothing and continue living in the house for a few more years.  For the homeowner who needs to sell, for whatever reason, whether it is a growing family, job change, health, and they do not want to sell at the current market value, renting could be an option. 

Experts are speculating about the recovery of the real estate market.  Some say we are near the bottom, others, such as PMI, the company that insures mortgages, estimates two more years of price decline, at least in the Tampa Bay area.  PMI did not just throw a dart at their estimate, but analyzed Florida foreclosures, unemployment and other data from the last quarter of 2008.  Other experts are predicting that Tampa foreclosures will increase in 2009 especially as unemployment continues to go up in the Tampa Bay area.

At a recent conference in Orlando, Florida, David Gergen, former presidential advisor and currently a professor of public service at Harvard's John F. Kennedy School of Government, predicted that the housing recovery would look like a saucer or soup bowl. that is an eventual leveling at the bottom, but staying there for a while and then there will be a very gradual recovery.  These predictions indicate that if someone decides to rent their home now, it may take another two years of decline, then with the gradual real estate recovery, two or three more years for prices to get back to today's level.  So the homeowner who opts to rent until the market recovers may have to rent their house, act as a landlord, for 3-5 years to just break even, if inflation is not taken into account.

If there is little to no equity in the house and the owner has a negative cash flow, holding or renting might be risky strategies.  A loan modification could work, selling at a loss if the owner can sustain a financial loss, a short sale - if the bank is willing, or going to foreclosure are other options.  In every case, serious consideration of the consequences, including the unintended consequences, must be carefully evaluated.

For specific legal advice, or financial advice, you should contact your attorney or accountant.