JACKSONVILLE, FL – This article diverges from our typical analyses, which often seek clear correlations between economic variables that impact multifamily real estate. This week, we investigated the relationship between M2 money supply and the Apartment Price Index. The theory was that an increased money supply would boost economic activity, leading to higher real estate prices. However, our findings were more nuanced. While there is a correlation, it is neither immediately strong nor straightforward. The most significant connection, although mild, appears with a five-quarter lag, showing a correlation coefficient of just 0.25. This challenges conventional wisdom and prompts a deeper exploration into the nuanced effects of monetary policy on the real estate sector.


Our analysis used data from the Federal Reserve Bank of St. Louis, employing a time-series approach. We examined year-over-year changes in M2 money supply against the Apartment Price Index over an extended period. We explored various lag periods to understand how shifts in money supply eventually impact the real estate sector. This approach involves identifying leading indicators—variables that can help predict future changes in another data point.

M2 Money Supply and Apartment Price Index

Initially, the correlation between these indices was mild, with coefficients less than 0.2. Anticipating a delayed effect of money supply on apartment prices, we introduced time lags into our analysis. The strongest correlation emerged with a five-quarter lag, but even this was only 0.27. This suggests that changes in M2 money supply are fairly unreliable early indicators of subsequent movements in apartment prices. Typically, we focus on correlations stronger than 0.5, as the correlation scale ranges from -1 to +1, where values closer to 1 (or -1) indicate a stronger (or inverse) relationship.

The next chart showcases correlation coefficients across various lags, highlighting the peak correlation at a five-quarter lag. This peak represents the strongest delayed influence of money supply on apartment prices.


Our findings suggest a lagged transmission mechanism where monetary expansions or contractions influence real estate markets after some time. This delay likely results from the time it takes for monetary policy changes to percolate through the economy, affecting lending rates, investment appetites, and, ultimately, real estate demand and pricing. Surprisingly, the delayed impact was relatively small. The main takeaway for multifamily investors is that apartment prices are relatively stable and do not heavily depend on the total amount of money in circulation. This is a reassuring finding for investors not keen on predicting the Federal Reserve or Treasury’s next moves.

In future research, we will explore the velocity of the money supply—how quickly money circulates through the economy—to see if it shows a stronger correlation with apartment prices. This additional layer of analysis might provide deeper insights into the monetary factors influencing real estate markets.

For a more detailed analysis and to explore the comprehensive data and methodology behind these findings, read the full article here.

About Nuvo Capital Partners

Nuvo Capital Partners is a niche market-focused multifamily private equity firm operating throughout the Southeastern United States. As a dedicated sponsor (General Partner), we specialize in institutional quality real estate investments within these regions. Our team, with a combined 25+ years of experience, has facilitated over $700M in transactions (10,000+ units). Delivering a transparent investment process, we provide our investors with access to high-quality real estate opportunities, while also ensuring integrity throughout. Our commitment extends to providing monthly, quarterly, and yearly in-depth reporting for our valued investors. To learn more, visit nuvocapitalpartners.com.

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