I’ve taken three interesting posts, from three wise men, and combined them to ask one very challenging question. Each are well worth a read, but I’ll do my best to provide a quick summary if you don’t have time.

1. David McWilliamsExposing the lie of the land

The real fair value means that, in a world where house price speculation is over, Irish house prices will have to fall on average by 50 per cent from where they are today to be worth buying. Madly, even after a year of house price contraction, the P/E for the average Irish house stands at over 29 times – twice the historical average for property.

2. Seth GodinIgnore sunk costs

You have tickets to the Springsteen concert. They were really hard to get…… On your way into the event, a guy offers you $500 cash for each ticket….. If you wouldn’t be willing to PAY $500 for these tickets then you should be willing to sell them for $500. Spend $250 on dinner and go buy better tickets for tomorrow night’s show.

3. Ronan LyonsIs it cheaper to buy or rent?

Taking the three posts together we are presented with these observations:

  • Property prices are most likely going to continue to fall
  • If you sell your house now and rent for the next few years, you won’t be significantly out of pocket cost wise.
  • If you chose not to sell your house now, and agree with David McWilliams, then you should treat the drop in house prices as a real cost. As in Seth’s example, if house prices are to drop by 50%, the question you need to ask is “would I be willing to pay 50% more for this house than I did?”

Which leaves us with an almost uncomfortable conclusion – If my house could sell for €400,000 today, and I assume that the drop will be only half as bad as David’s estimate (25%), am I willing to PAY €100,000 for the luxury of home ownership over the next 3 – 5 years?