Projecting post-crisis house and equity prices since the 1870s:not all crises are alike

This paper projects house and equity prices following different types of macroeconomic shocks since the 1870s in 17 western economies. In doing so, we classify macroeconomic downturns into three distinct groups: normal recessions, financial recessions, and disasters. By combining three newly available historical data sets spanning 143 years and by employing local projection technique, this study finds that financial recessions have the most detrimental effect and cause substantial decreases in house prices, stock prices and construction costs. Post-crisis stock price declines are observed through the whole sample period, but both house prices and construction costs were the most vulnerable to crises after WWII. The study also finds that stock prices drop substantially immediately after financial crises and rebound within four to six years, while shocks to house prices are more persistent. This asymmetry of persistence and magnitude of shocks among housing and equity prices might have had a substantial impact on post-recession wealth re-distribution since WWII as lower and middle class families are more likely to have their wealth invested in a home rather than in other financial investments like stocks.