It is possible for rental prices to go down if there’s an oversupply of rentals in your area. This could happen if there’s a recession, jobs are lost, and people start moving away. I don’t think rental prices are going to get cut in half, though.
My brother lives near San Jose. After the dot com bust, his rent actually went down. I think it dropped from about $1800 to $1400.
Regarding walking away from your house: that might be a good option. CalculatedRisk had some discussion about that. More and more, it looks like people are taking that option:
Instead of walking away from your house and renting, there is another option. Let’s say prices drop 40% and you are heavily under water. You could opt to buy a second house just like your first house, but for 40% less. Then, you can move into the second house and stop making payments on your first house. You’ll lose your first house and your credit will ruined for a while. But it won’t matter that much because you already bought the new house while your credit was good. CR talks about that here:
I can’t say whether you “should” walk away or not. My personal opinion is that you should look at the legal ramifications fisrt. If that’s okay, then consider the financial ramifications (both present and future). If it still makes a lot of sense, then do it. Ultimately, you have to look out for yourself and your family.
