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Investing in shares is a better bet than property

Shares are cheap relative to house prices. History suggests this points to them doing well.
Investing in shares is a better bet than property

UK shares are cheap relative to houses – a fact that is mildly encouraging for equity investors.

Although equities have risen faster than house prices since last spring, the ratio of the MSCI's UK index to Nationwide’s index of house prices is still close to its lowest level since 2009 and well below its post-1973 average.

This matters because the ratio has in the past tended to revert to its mean: when shares have been cheap relative to houses their prices have subsequently risen faster than house prices, and when shares have been expensive they have subsequently fallen relative to house prices. Since 1973, the correlation between the ratio and changes in it over the next three years has been minus 0.45. It would have been stronger than this but for the tech bubble of the late 1990s which saw expensive shares (temporarily!) become even more expensive.

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