Objective: The house prices in India have risen enormously in the recent past. Property buying has become unaffordable to a large section of population. Therefore, the study aims to identify the macroeconomic factors that can influence the House Price Index in India.
Methods/statistical analysis: This study examines the macroeconomic determinants that can influence the House Price Index in India. The period of study is from 2010 Q1 to 2017 Q4. The study attempts to investigate the linkage between GDP, interest rates, housing credit, exchange rate and inflation with House Price Index. Hence, we employed correlation and multiple regression analysis, Johansen co integration test and VECM to identify the dynamic relationship in short run as well long run.
Findings: The study concluded that GDP, exchange rates, housing credit and inflation have strong positive correlation with house price index except for weak negative correlation with interest rates. The regression analysis has the adjusted r- squared 98.75% which indicates the model is strong. The Vector Error Correction Model which examines the dynamic relationship amongst variables in short run as well long run observed unstable long run association however there is presence of short run casual association of GDP, housing credit and interest rates with House price index. The study observed the absence of long run association of macroeconomic factors especially the GDP and House Price Index. Therefore, the study indicates the present rise in house prices may be supported irrational consumer expectations and not significantly influenced by incomes.
Applications: The study can guide the potential investors in real estate to revisit their investment plans. It is a clear indication for policy makers to that the rise in house prices is not in sync with the income rise.