I just got back from a busy travel schedule to speak at a couple of events. As the best (that is to say only) demotivational speaker in the real estate industry, I am in very low demand as a speaker.
Having said that, I know I’ve shared this over the last couple of years, but with some of the new readers coming onboard with Substack, I thought I would repost the latest version, discuss it, and explain why I think this is such a critical chart.
Case-Shiller vs. M2 Money Supply
Here’s the chart via TradingView. I plotted the US Case-Shiller Home Price Index vs. the US M2 money supply. It’s an interesting comparison.
From 2000 to about 2006, the price of homes diverged significantly from the money supply. We know that period today as the Real Estate Bubble. Then we had the Bubble pop in 2006, lasting until 2009 or so followed by a sort-of-anemic housing market through 2012. But as the money supply kept increasing steadily, so did home prices. People forget that housing affordability was getting worse and worse before 2020. The topic of every conversation in REALTOR conferences in 2018 and 2019 was how there as a shortage of inventory and home prices were getting out of control.
Then came the COVID Stimulypto and home prices tracked that almost perfectly.
Since the Fed started tightening and actually reducing the money supply, housing has taken a hit. Home prices are down more sharply than the money supply… but it tracks.
What this chart says to me is that we did not have a “hot housing market” since… well… ever. I don’t regard a Bubble as a “hot housing market.” What we had instead was dollar devaluation.
The second chart that really needs to accompany this chart is this one:
Because while the dollar was devalued, the American worker kept getting paid in devalued dollars and any raises did not keep pace with that devaluation. The M2 went from about $4.5 trillion to over $22 trillion — a 5x increase. Did anybody’s wages go up 5x from 2000 to 2023? I don’t think so.
That is why housing is unaffordable.
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