Just a side note: A neighbor, his 2 children and wife, lived in their living room and bathroom for 6 months while they totally remodeled their house. They cooked on a barbecue...no kitchen. The funny thing is, after the first couple of weeks, they got accustomed to the situation, and after the 6 months when they moved into their substantially larger remodeled home, they missed the intimacy of their temporary living situation. Maybe an attitude adjustment will get you through until your home is valuable enough to sell or refinance without affecting yoru credit.
Is the market value of your home less than what you bought it for?
Since you said you are "upside down"...have you tried to renegotiate your loan? What options have your lender given you? Selling the property as a short sale will practically negate any chance you have of buying another property.
Can you refinance your current home so that you can get a better rate? Then wait a few months and try to sell it. Perhaps by that time, the market would have corrected itself and we'll be back to "normal".
If you're going to do a short sale, it will have a negative impact on your credit, albeit not as horrendous as a foreclosure or a bankruptcy.
Few options to consider... 1. See if you current lender will work with you on a loan modification. Maybe you can get the payments down where rent can cover the payment? Unless it does already. 2. Speak with a reputable lender to see what you realistically can qualify for in terms of a new loan for a larger home or possibly restructuring your existing loan.
Cindi is right about doing a short sale you will not qualify for a new one... plus there may be huge tax consequences that you can discuss with your CPA and or Attorney.
If you don't mind, I would like to make a lender recommendation... Lori Goldman, Guild Mtg 619-885-0093.
Good luck and wish you all the best.