I think I answered this question for you on a different forum, so much of what I said there I will restate here for those who may be reading your post and who may be considering the same question. What has changed in your question is the note that you have had a reduction in Salary.
What you haven't addressed is they why you are considering a Short Sale. If it is merely because you are $38,000 short does not seem like a compelling reason to me. See my points number 3 and 5 below.
In this market, the typical answer has been, yes, Short Sale. But if your estimation of your property value is correct, your situation is a bit different than the typical Homeowner today.
Most People who bought around 2007 for $250,000 are under water by a more significant amount than you say that you are. Others who bought might have a current property value of as low as $100,000 which would change the answer to your question. I guess what I am beating around the bush about is that you owe it to yourself to get more than one market analysis on your home to verify its current market value.
However, if in fact your home is worth $150,000, my answer is that you might want to consider holding on to the home, since you are only upside down by $38,000. Here is my logic.
1) First, you don't need to move.
2) Unless your drop in salary is more than $500 per month (again, see #5 below), you don't appear to have a reason to move other than the drop in value. A drop in value does not constitute a hardship, which you typically have to be able to substantiate in order to get a short sale approval. I say typically, because some banks are allowing short sales when no hardship is supported, but where the homeowner has become delinquent and it is apparent that they intend to default on the loan.
3) Consider that you are in this house for another 5 years. You will have paid down the loan, and the value will most assuredly have gone up from where it is today, and you will likely actually make money on the home when you do sell.
4) With your interest rate where it is, I would like to think that you could renegotiate a modification to the rate and lower the payment bringing you closer to a break even cash flow on rent.
5) If you Short Sale, as a tenant you lose the interest deduction off your taxes. Depending on your tax bracket, this is big. For instance, let's say you are in the 25% tax bracket, and your interest is in the neighborhood of $1,000 per month. As a homeowner, you are able to claim that interest deduction on your taxes. First, because of your 25% tax bracket, that means you will receive approximately $3000 back on your taxes each year. But wait... like a Ginsu knife offer, "There's more". It doesn't stop there, because there is, in effect, a deduction multiplier (lets call it "the DM") on your taxes for the following reason. Because you are able to deduct the interest off your taxes, you get other deductions as well. Which means, if you do not have the interest deduction, you likely are not able to itemize your deductions at all, so many of the expenses that are now deductible for you now, will not be available to you in your post homeowner life as a renter. So the result of possibly saving $325 per month by renting is taken away. Yes, your low rent landlord giveth and the IRS taketh away.
6) You lose your pride of ownership in "The American Dream"
7) Regardless of what someone might try to "guarantee", there is no guarantee that the bank will agree to no deficiency, unless your Home Loan and you qualify for a HAFA Short Sale. Because the amount of deficiency is small, your chances are good, but not assured.
8) Lastly, if you do short sale, your credit will, at least for a year get hit which has a cascading affect on all of your credit, including credit cards, car loans, etc.
Having said all that, I will tell you that I specialize in Short Sales. That accounts for nearly all of my sales. If you decide you do want to do a Short Sale, use someone who will work hard to get the deficiency release. I would be more happy to help you through the maze.
Best of Luck and thanks for reading.