The housing crisis is poised to deliver more shocks to the U.S. economy in 2008.

This morning, the U.S. Conference of Mayors (USCM) unveiled a grim report detailing how spiraling losses from the residential foreclosure crisis will rattle the nation’s largest metro areas. Ripple effects from the flailing housing market could also ding the national economy through lower tax revenues and job growth. 

The dollar volume of projected declines is sobering. Based on the forecast, foreclosure activity will trim gross domestic product (GDP) growth in the nation’s 361 largest metro areas by $166 billion in 2008. Some areas will feel the pain more than others: As many as 128 metros will post “sluggish” gross metropolitan product (GMP) below 2% in 2008. GMP is the combination of local GDP growth and total economic output, according to the survey.  

“Not that long ago, economists said housing was the backbone of our economy,” says USCM president Douglas Palmer, Mayor of Trenton, NJ.  “Today the foreclosure crisis has the potential to break the back of our economy.”

The report, which was prepared by financial analysis firm Global Insight, projects that roughly 524,000 fewer jobs will be created in 2008. Job losses of that magnitude would skim $6.6 billion in tax revenues in ten states. Even so, the survey stops short of forecasting a full-blown recession in 2008.

Markets where housing values shot up in recent years are more exposed to slower growth. The nation’s largest metro area, New York City, stands to lose more than $10 billion in economic output due to the mortgage crisis. Los Angeles and Dallas round out the top three with $8.3 billion and $4.0 billion in reduced economic growth next year.

“The foreclosure crisis is no longer just about mortgages,” says Detroit Mayor Kwame Kilpatrick. “Entire neighborhoods are being negatively affected on several levels. This issue is now the number one economic challenge of many major American cities.”

It could take years for housing values to recover from this current downturn. For the near term, the USCM report estimates that average home values will drop by an additional $519 billion in 2008, bringing the total forecast of lost equity for the nation’s homeowners to $1.2 trillion. 

Value declines could crimp economic growth as homeowners are unable to tap home equity lines of credit. The USCM survey expects the U.S. economy to grow by just 1.9% in 2008 (one percentage point lower than it would have without the mortgage mess).