[DesertCat]

I would keep the house. It's difficult to time the market, esp. when you don't even know your own future plans. And you will be incurring signifianct transaction costs. If you are happy and can stay for three or four more years you are probably best staying put.

As far as the loan is concerned, don't refinance unless it's a lower rate. You have 3 more years on your existing loan, why pay more for 3 years just for the possibility of saving some money in 2009? Money in 2009 is not as valuable as money today. You should have a higher income, there will be inflation, etc.

Lastly, I don't know how much things have changed since I moved (3 years ago), but PDX has always been a horribly expensive place to live. House prices were lower than CA and WA, but the average income is also substantially lower, so on house price to income ratios, PDX usually does very poorly. I moved to PHX and got a substantially larger and more expensive home for 1/3 the RE taxes, while cutting my income tax by more than half.

The good news is unless Metro smartens up and removes the urban growth boundry to make housing affordable for everyone, you own something that's going to stay in limited supply, a single family home in PDX. PDX is much less likely than PHX to suffer from a housing bust. Here they can just bulldoze a few farms and build 10k new homes any time they want. You like PDX, you like your house, I'd sit tight, live frugally, and see what you and your wife want to do in three years when your ARM adjusts.