Multi-year droughts in Mediterranean climates often see a lower fraction of precipitation allocated to runoff compared to non-drought years. By comparing observed water-balance components with simulations by a hydrologic model (PRMS), we reinterpret these shifts as a hysteretic response of the water budget to climate elasticity of evapotranspiration. Our results point to a general improvement in hydrologic predictions across drought and recovery cycles by including this mechanism.