Estimating the causal relationship between foreclosures and unemployment during the great recession

•We use a local projection method to estimate a system that includes housing.•Shocks to foreclosures cause unemployment to rise and housing prices to fall.•Shocks to housing prices, however, have small and often insignificant effects.•A rise in foreclosures is how a housing crises propagates to the general economy.

Using a local projection method, we estimate the relationship among unemployment, foreclosures, and housing prices. More foreclosures cause a major increase in unemployment and a large decrease in housing prices. Higher housing prices, however, have only small effects on unemployment and foreclosures.