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> Other house prices presumably fell along with yours so you can still sell yours and buy a similar one.

Not if the house lost more value than your down payment. If you're underwater (and a lot of people are), you need to either arrange a short sale or bring money to the close. Either way it's nowhere near as easy as you imply.

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Also, people don't usually sell their house and buy a similar one in the same place -- they either upgrade or downgrade, or move to a different neighborhood or city, and in either case, the prices are likely not to have moved in the same direction at the same pace. In my neighborhood, 1-BR coops have dropped in price more quickly than 2-BRs, for example.

If you owe more than the house is worth then theoretically you should default and walk away. I know that question has been debated endlessly and I don't understand all the practical implications like what it means for your credit rating, or even whether it should be considered ethical.

I concede that if defaulting is not an option then you may be stuck if you owe more than the value of the house and can't borrow more money. Good point.

Defaulting differs in different countries. You may be forced to liquidate other investments to make up the shortfall. Nonrecourse loans are not usual outside of California, AFAIK.

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