Again...negative equity is only important if you are looking to come out of the market any time soon. Given that the housing market, as with every other market, is cyclical, prices will pick up in due course and the negatie equity situation will reverse.
Negative equity is something that will always take place when people buy at the top of the "up" cycle...but the effects, in the LONG TERM, are purely psychological.
The main losers, of course, are multiple buy-to-let investors who are looking for a quick profit on an upward market. If you are in this bracket then you might feel the pinch and be restricted in your moves, but "normal" homeowners who have not overstretched themselves financially should not experience any problems in the long term.
Paul Carcone