We show that the 2006-09 US housing crisis had scarring local effects. For a given county, a 10% reduction in housing wealth from 2006 through 2009 led to a 3.3% decline in employment by 2018, and a commensurate decline in value added. This persistent effect occurred despite the shock having no significant impact on labor productivity and only a short-lived impact on household demand, house prices, and household leverage. We find that the local labor market adjustment to the housing shock was particularly costly: local wages did not respond, and longrun convergence in the local labor market slack instead took place entirely through population losses in affected regions. These results on population adjustment leading to mean-reversion in local slack extend the seminal observations by Blanchard and Katz (1992) to the effects of a temporary and identified local demand shock. Additionally, we show that the housing bust, compared with the housing boom, had asymmetric effects on employment and wages, indicating a role for downward wage rigidity.