HOUSE price growth has sharply deteriorated in the last few months according to the Nationwide average house price index. The latest reading from February is a sluggish 0.4 per cent increase, which came after January’s meagre growth of 0.1% - the lowest rate since February 2013.

The slowdown in house price increases has occurred despite favourable supply and affordability conditions. When we talk about a favourable supply backdrop, confusingly, we mean the opposite: there are still about 50,000 fewer new-build houses coming to the market each year today, compared to the 1980s. On the demand side of the equation, affordability is a key metric and best measured by the cost of servicing a new mortgage as a proportion of take-home pay.

With such a ‘favourable’ supply and demand backdrop, it’s reasonable to conclude that the recent deterioration in house price owes much to sentiment. This assessment is consistent with a recent decline in consumer confidence and the Building Societies Association’s quarterly property tracker, which indicated that Brexit uncertainty is the primary cause for the sharp fall in housing market confidence.

While the risk of a no-deal Brexit looms, prospective house buyers may be tempted to wait for the uncertainty to subside. This could lead to some sellers lowering asking prices in an effort to attract buyers, which means actual year-over-year declines in house prices shouldn’t be ruled out for the coming months.

However, in the medium term, the chances are high that ‘real’ (inflation adjusted) house prices will revert to being flat or increase by, at most, 1% per year. After accounting for fees, tax and the benefit of living in the house without paying rent, this makes the narrow return from investing in the housing market roughly comparable to the expected return of a medium-risk balanced financial portfolio. The big advantage that a balanced portfolio of financial assets commands comes from the greater degree of diversification that it offers.

Nobel Prize–winning economist Harry Markowitz - the father of modern portfolio theory, was the first to demonstrate that a diversified portfolio can deliver improved performance and lessened risk relative to individual assets. This notion that you’d get something for nothing is nearly unheard of in economics. And it is why Markowitz famously called diversification “the only free lunch in finance”. The key concept behind the free lunch is correlation or, rather, a lack of it.

Typically, the performances of individual assets are not perfectly correlated. If asset values do not move up and down in perfect harmony, then a diversified portfolio will have less risk than the weighted average risk of its parts. And it means you would not be putting all your eggs in one basket. If the market in one country or region stagnates, the difference can be made up in other sectors that are booming. This makes a globally diversified portfolio more resilient to the more idiosyncratic problems faced by an economy, a city or even a street in the UK.

Diversification across asset classes similarly cushions the impact of downturns in equity markets. The more extensively diversified an investment portfolio, the greater the likelihood it mirrors the performance of the overall market.

Having typically limited tracking errors, individual balanced portfolios tend to achieve gains near the market average. This is in contrast to an individual house, which gives you far more concentrated exposure, and performance can differ significantly depending on location and other factors.

Investing in a well-diversified portfolio is a matter of putting your faith in the collective ingenuity and restlessness of the world. Such an investment can be complementary to the bricks and mortar investment that you rely on for shelter from the drizzle.

Craig Jamieson is regional director, wealth management at Barclays.