Relative to the average episode, commercial real estate prices neither fell much during the recession nor rose a lot during the expansion. And instead of declining during the recession, residential real estate prices continued their upward trend. The behavior of real economic activity around the recent cyclical peak (figure 11) suggests a second interesting comparison.
Relative to other recessions, this recession was shallow and did not appear to impart an unusual drag on investment, despite the sharp asset-price correction. Why was the 2001 recession relatively short and shallow even though the preceding swing in asset prices was so severe? In my opinion, two reasons stand out. The first regards the health of the financial sector.