If the house you are interested in is in the location where the prices are going down too, the rationale behind the process of selling and buying for this particular scenario is that whatever you lose on the sale of your current home can be gained from the purchase of the new home. This is my thought process.
As long as you can afford and comfortable to sell it at a loss to purchase the new home, I would say go for it. You lose leverage on the selling part but you get leverage on the buying. Please have a realtor work for you to ensure that you will get the leverage I mentioned.
Your value is down, but so are all the bigger better homes you want to buy. The answer to your question depends on what you owe, what cash you have and if you can sell.
If you can make the move, you'll gain more long term on a larger more valuable home. The present loss may be made up over time by the projected gain when/if the market returns.
Talk to some local agents and lenders and discuss your specifics. They will be in the best position to advise you. Agents & lenders don't charge to meet and explore opportunities.