A new paper from the ESRI on negative equity provides a useful addition to the ongoing debate about the problem. The projections for the incidence of negative equity are grim - the table indicates that possibly up to 30% of home owners will be 'upside down' in American parlance by the end of next year.
As always such projections are subject to considerable uncertainty - especially in terms of the assumptions behind them. Negative equity only matters when you want or need to sell, and it may well be, as I've noted before, that the current generation of first time buyers might just sit tight and wait until prices come back to nominally the same levels as before rather than sell.
Though that could be a long wait. Expect the next wave of 'financial innovations' to be targeted on helping those with negative equity move and buy again anyway. 100 year mortgages anyone?