Housing crash? Look at Money Supply in U.S. in the last 150 years

Real estate prices depend on great many things including inventory levels, savings rate, interest rate, property tax rate, new construction rate, population growth rate, job growth rate, etc. In a nutshell, it depends on supply of real estate and demand of real estate. This is what much of other analysis is focused on and it is indeed good analysis to try to predict shorter term impact on prices. But here we try to zoom out and look at a long term effects from the money supply perspective.

We look at M2 money supply (aggregate supply including currency in circulation, bank deposits and commercial bank credit and loans) over time.

On linear scale M2 curve does not make much sense. Since M2 is compounding, we need to replot on log scale.

Once on log scale we see a nearly perfect straight line! 

The dips in this straight line also correlate with major economic events (except for 2008 crash, where no dip was seen in M2 due to stimulus).

Increase in M2 was well before Fed establishment in 1913. And Fed is not what is leading to an increase in money supply. The increase is due to commercial banking system with fractional reserve banking, and has been going on for hundreds of years. The Fed is not printing money aside from debt monetization (QE). Commercial banks do, and they have been for hundreds of years.

M2 growth is very correlated with: housing index, stock market, GDP and even incomes on long enough timeframe. This is why understanding M2 is so key for long term investing.

Summary: Available data from 1867 until 2022 shows that M2 money supply continues to increase at a predictable rate and generally correlates with stock market, housing, GDP and even wages. Does not mean there will not be a decrease in housing prices even in real terms, however, as long as the current banking system exists, long term prices will continue to trend up with M2 money supply.