Measuring a boom and bust: The Sydney housing market 2001-2006

The Sydney housing market peaked in 2003. The period 2001-2006 is, therefore, of particular interest since it captures a boom and bust in the housing market. We compute hedonic, repeat-sales and median price indexes for five regions in Sydney over this period. While the three approaches are in broad agreement regarding the timing of the turning point in the housing market, some important differences also emerge. In particular, we find evidence of sample selection bias in our hedonic and repeat-sales data sets (with the former focusing more on better quality dwellings and the latter more on lower quality dwellings). These sample selection biases could in turn cause bias (in opposite directions) in our hedonic and repeat-sales indexes. Median indexes may likewise be biased as a result of an apparent decline in the average quality of dwellings sold in the latter part of the sample. We also find evidence of convergence in prices across regions during the boom and divergence in the subsequent bust.