In August, prices rose in 17 of 20 cities. Only Charlotte, Cleveland and Las Vegas recorded month-to-month declines. In the past year, prices are down 11.3% in the 20 cities. Prices in all 20 cities were lower in August 2009 than in August 2008, but in general, year-over-year declines have lessened. “We do want to remind people of the upcoming expiration of the federal first-time buyer’s tax credit in November and anticipated higher unemployment rates through year-end,” said David Blitzer, chairman of the index committee at S&P. “Both may have a dampening effect on home prices.”

Economists at Goldman Sachs said they expect a further 5% to 10% decline in prices. Falling values have been a major factor contributing to the chaos in the global economy, because financial institutions made too many bad bets that U.S. home prices would never fall. Millions of homeowners have found themselves owing more on their house than it is worth. They cannot sell for what they owe, and they cannot refinance their home loans. Nor can they borrow against their home to finance their consumption. Trillions of dollars of wealth have evaporated. Rising unemployment is now driving foreclosures. Another wave of foreclosures from interest-payment-only mortgages is anticipated, beginning in spring 2010.

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Take a look at this graph, from The Economist, which shows the industrial production of emerging Asia compared to the United States.

Click for larger image

Looks like Asia is recovering pretty well. The chart above clearly illustrates the “decoupling” that became such a hot topic of discussion last year. The idea was that the Emerging markets would not necessarily follow lockstep with the Western countries.

The Developed World suffers through what Richard Koo, the chief economist at Nomura Research in Tokyo, calls a “balance sheet recession.” The Western world suffers from too much debt. That fact shifts the focus from making profits to repaying debt, according to Koo. Debt repayment will continue until the West repairs its balance sheets, a process that takes years to correct, as Japan’s long recession shows.

So the same dynamics that make emerging markets look good, work in reverse for the Developed World. According to Anderson’s model, the stressed balance sheets of the Developed World predict slow growth.

As investors, then, we’ll have to continue to look to the emerging markets for growth. The market never ladles out its rewards evenly, though. To drill down further, the big winner is really Asia and its big markets of China, India and Indonesia.

Anderson estimates that these regions could grow 7% or more annually, well above the tepid rates of developed markets and better than most emerging markets. “This is a very hefty gap,” he writes, “and one that is very likely to continue to reward investors who take advantage of the opportunity.”

Read the rest of “Emerging Markets in the New World Disorder” on The Daily Reckoning

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