When it comes to household net worth, declining home prices and a falling stock market are a recipe for disaster. U.S. households saw their net worth fall a whopping $11.2 trillion, or 18 percent, to $51.5 trillion at the end of 2008, essentially wiping out five years of gains, the Federal Reserve reported Thursday. In the fourth quarter alone, household net worth dropped $5.1 trillion, posting a record 31 percent annualized decline. Net worth -- defined as assets minus liabilities -- has fallen for six consecutive quarters since it's peak in the second quarter of 2007. At year-end 2008, assets fell by $11.3 trillion to $65.7 trillion, while liabilities fell $87 billion to $14.2 trillion. Interestingly, as household assets were plunging, households were also acquiring less debt, deleveraging their balance sheets -- mind you, after five years of double-digit growth in debt. Household debts fell at a two percent annual rate in the quarter, including a 1.6 percent decline in mortgage debt and a 3.2 percent decline in consumer credit. Fourth-quarter 2008 actually saw households pay off more debt than they took on for the first time since at least 1952, which was when the Fed began reporting the information in its quarterly Flow of Funds report, explained a Market Watch Report. For all of 2008, household debt rose a historically low 4.8 percent, considering debt had never risen less than five percent in a year since the early 1950s, said Market Watch. As for the federal debt, that's a different story. Federal debt increased 24 percent in 2008 and increased at a 37 percent annual rate in the fourth quarter. Write to Kelly Curran at kelly.curran@housingwire.com. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade