We are in a similar situation, except we are much further upside down.  Just over two years ago we paid approx. $400k for our home in a brand new neighborhood.  It began detiorating in value within four months of our move in date and to make matters worse our neighbor just did a short sell on their home that the bank approved for $168k.  We can make the payments however, the neighborhood is not turning out anything like we expected.  If we chose to pursue a short sale, what are the implications for our credit and on future home purchases?  Thanks.