How Stock Markets Have Thrashed House Price Growth

Never underestimate the power of the dividend…

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The British are obsessed with house prices, but is our obsession misplaced?

We were crazy about house prices in the 1980s, when values shot through the roof. And when they crashed in the early 1990s, everybody went crazy again, only in a different way.

Crazy days

Our mania reached a peak in the run-up to the financial crisis, when house prices soared to previously unseen heights.

Incredibly, five years later, prices are higher still.

Government figures put the average house price at £250,000. In London, that figure leaps to £450,000, an incredible 20% higher than before the credit crunch in 2008.

For many Britons, owning a home is the only way to build serious wealth. 

By contrast, many remain sceptical about stock markets. They remember Black Monday, 1987, when markets crashed, and recession followed. 

They saw the FTSE 100 lose half its value at the height of the credit crunch, and didn’t like it. 

Yet here is the astonishing thing. Over the last decade, stock markets have delivered a higher return than house prices. A far higher return.

I was surprised, too.

Stocks and mortar

I have analysed data from Halifax, which has records on property prices going back more than 30 years.

In February 2009, at the height of the financial crisis, the average UK property cost £160,164, according to its methodology.

Five years later, in February this year, it cost £179,872.

That is a little over 12% higher.

Over the same period, the benchmark FTSE 100 index has delivered a total return of a whopping 103%, including growth and dividends, according to figures from S&P Capital IQ.

The stock market wins over 10 years as well.

In February 2004, the average UK property cost £148,497, according to Halifax. Today’s £179,872 figure is just 21% higher.

Over the same period, the FTSE 100 delivered a total return of 110%. That is despite losing half its value during the financial crisis.

Never underestimate the dividend

So yes, stock markets do crash. But their recovery powers are enormous.

Better still, shares give you something your home never will.

Major FTSE 100 companies pay regular dividends to investors as a ‘thank you’ for holding their stock.

Right now, the FTSE 100 offers an average dividend yield of just over 3.5% a year.

If you re-invest that dividend for growth, year after year, your money will grow in value even if stock markets remain flat during that period.

Over the longer run, dividends account for roughly 40% of the profits you make from stocks and shares.

You don’t get a dividend from owning a property. But you get plenty of expenses, such as the cost of doing it up, and repairs and maintenance. 

Climb on the stock market ladder

In an ideal world, you would hold both property and shares.

But if you’re one of the growing number of people who believe they can never build personal wealth, because they can’t get on the property ladder, don’t despair.

There is another way. And over the past 10 years, it has been far more rewarding.

Better still, you don’t have to be rich to invest in stocks and shares.

The average first-time buyer property deposit is now £26,533. First-time investors can buy shares from as little as £500. 

Maybe it’s time Britons became crazy about share prices instead of house prices.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Here’s how I’d aim to build a £50K SIPP into a £250K retirement fund

Our writer outlines the approach he would take to try and increase the value of his SIPP multiple times in…

Read more »

Investing Articles

9.4%+ yields! 3 proven FTSE 100 dividend payers I’d buy for my Stocks and Shares ISA

Our writer highlights a trio of FTSE 100 shares with yields close to 10%. He'd happily pop them into his…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »