It's confirmed. The United States of America has suffered the largest home price decline in the western world over the last two years. The Economist provided a house price index which compared America's 15% house price drops (based on the S&P/Case-Shiller national index) to a number of other developed countries. This goes a long way to explaining the recent financial collapse and government takeover of mortgage companies Freddie Mac and Fannie Mae.

Unfortunately it looks like there is more pain ahead according to Jan Hatzius of Goldman Sachs who predicts that house prices will fall by a further 10% and that overall mortgage-related losses will eventually reach $636 billion. Even with Fannie and Freddie continuing to lend, he reckons the credit crunch will knock 1.8 percentage points off GDP growth. That would put us into negative, recessionary signalling territory.

Despite countries like Australia, Hong Kong and Canada still enjoying considerable home price appreciation, their stock markets have dropped significantly more than ours. This suggests that there is still a lot more pain ahead for home owners in these countries if the market pricing of future events is any guide. It is said that when America sneezes, the world catches a cold. It looks like as America begins its path to recovery after infecting the rest of the world's credit markets (because they are so heavily invested here), other nations are will need to seriously face the impacts and pain an economic slump can create. My bet is that the subsequent years housing data will probably be in reverse order to the table shown in this post.