A Relationship among Interest Rate, Inflation, Population and House Price Index

The Financial Stability Review Second Half 2021 of Bank Negara Malaysia’s (BNM) has reported that the number of unsold houses in Malaysia remained elevated at 180,702 units in the third quarter of 2021 (Q3’21). This has attracted the researcher to explore more on House Price Index (HPI) in Malaysia. HPI measures volatility prices of residential housing in Malaysia over time. The objective of this study is to identify whether there is a relationship among interest rate, inflation rate, population, and house price index in Malaysia by using STATA software. The annual time series data spanning from 2003 to 2021 is used to achieve the objective of this research. The analysis of such times series data was made through the Johansen Test and it was discovered that all explanatory variables were related to HPI in a long run; in which it is negatively related to interest rate, inflation rate and population. However, when the Granger Causality Test was applied to the same time series data, HPI was found to be affected by both the interest and the inflation. Population, on the other hand, does not influence HPI in the short run dynamics. Therefore, it is concluded that most variables used in the study are significant in determining HPI. It is recommended that more independent variables such as real GDP per capita, real domestic credit, construction costs and land supply that can influence HPI should be added for future studies .