The Reserve Bank is serious about lifting rates

1. ASX200 returns 8pc, but banks now a problem

2. The Reserve Bank is serious about lifting rates

3. Tesla is back, if it ever went away

4. The energy crisis gets worse and worse

THIS WEEK'S BIG STORY

House price heaven in Perth, Adelaide and Brisbane. Hell in Hobart and Melbourne.

Hobart home prices fell last year - just 0.1 per cent, but it was still a negative, and prices are nearly 12 per cent below their peaks. Melbourne prices rose just 1.3 per cent and remain nearly four per cent below their peak. Darwin and Canberra increased 2.4 per cent and 2.2 per cent respectively and are trading about 5.5 per cent below peaks. The average gain across the nation of 8.3 per cent is a big turnaround from the two per cent fall the previous financial year. CoreLogic says the average wealth gain per property across the nation last year was $59,000.

Best housing markets?

Perth house prices, on average, jumped 23.6 per cent last financial year. Brisbane came in at 15.8 per cent and Adelaide at 15.4 per cent, according to CoreLogic. All three are trading at record highs, as is Sydney, where prices rose 6.3 per cent last year. Across the nation the capital city average rose 8.3 per cent while it was seven per cent across the regions. They are spectacular returns from Perth, Brisbane and Adelaide but over the longer term, they are playing catch-up after previously underperforming Sydney and Melbourne. 

Worst housing markets?

Trend monthly price growth has slowed from the highs of 12 months ago, and most analysts don't expect the boom cities of Perth, Adelaide and Brisbane to repeat last financial year's efforts. There is still a housing shortage and people generally have jobs. That will support prices, though the impact of high interest rates will offset those factors somewhat. Analysts are tipping further price growth over the next year, though not as strong as 2024, with divergent cities remaining a feature of the market. 

What's driving prices?

If you break down the major city housing markets, you get a real-life example of supply and demand interacting to set prices. Supply levels in Perth, Adelaide and Brisbane are running around 30 per cent below their five year averages. In the case of Perth and Brisbane there is strong interstate migration. That all means low supply and high demand, hence prices are rising. In Hobart and Melbourne, the two weakest markets, listing levels are well above their five year average. High supply means less price pressure.

Outlook for 2025

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@nath_anagram on Instagram on the potential for the Reserve Bank to increase rates in August:

"Trying to fix inflation by punishing all the new house buyers and younger generations while the real estate established just get richer and keep spending."

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Thanks for reading my opinions on the week's biggest stories.

- Sean Aylmer

There is a downside for investors when one sector dominates a market. It becomes very difficult to not invest in that sector for fear of underperforming. Wall Street has seven dominant tech stocks (Microsoft, Apple, Nvidia, Amazon, Meta, Google and Tesla) that make up around 30 per cent of the S&P500, but well over 50 per cent of the gains in the index over the past year. The S&P/ASX200 is heading the same way with the "financials" category, which is dominated by the big four banks, now comprising 31 per cent of the bourse. Anyone wanting to match last financial year's eight per cent return, and ensure they have a diversified portfolio, pretty much had to have some of the big banks. Commonwealth Bank and NAB were particular beneficiaries. Problem now is that if you want to invest in the ASX200 passively, then you have to own the big banks. If you are an active investor, then betting against the banks becomes riskier, because of their influence on the market. And if the banks have a bad year - which is very possible given the valuations they are trading at - then the market will struggle to provide decent returns. The big banks could become a big problem for investors. 

The scary thing about the Reserve Bank board minutes released this week is just how serious the central bank is about lifting interest rates. Governor Michele Bullock has always said the best way to help all people in Australia is to keep a lid on inflation, even if that has casualties along the way. Unfortunately those casualties are people who can least afford it - renters, low income earners. In the board minutes, the central bank said consumer spending seems to be higher than expected, overseas economies are slowly improving, and business conditions are stable. All good news, except the bank is describing conditions unlikely to cause inflation to fall much further. The board is very worried about inflation expectations. What happens if people expect prices to keep rising? Workers negotiating wage rises demand more because they expect inflation. Shop owners put up prices because they expect higher wages, and know customers expect higher prices. Inflation expectations become a self-fulfilling prophecy. Lifting interest rates culls expectations. Hate to say it, but another rate rise is a real possibility.

I have lived in the USA for about four years over the last three decades and was an unashamed Americanophile. The last week has changed my mind. First the Presidential debate. How can the world's most powerful country put up as potential leaders, a person who is too old to run the country, or at least will be by the end of the next term, and a person who is a liar and an egomaniac? How has politics in the world's greatest democracy descended so far? Then this week we had the highest court in the land, the Supreme Court, determine that Presidents and ex-Presidents are entitled to "at least presumptive immunity from prosecution of official acts". The President, if acting in an official capacity, can't be charged with wrongdoing. So much for no-one being above the law. The ruling puts the President above the law. It isn't just about Donald Trump, though his erratic nature highlights the potential abuse of the Supreme Court determination. It's about anyone running the USA in the future. It isn't a world away from what happened in Russia in 2020 when Vladimir Putin changed the laws, allowing him to stay on until 2036. The USA's moral leadership of the free world has evaporated. So has my admiration for it.

The wind isn't blowing, the sun ain't shining enough, gas supplies along the east coast of the country are running low, Snowy 2.0 is way behind schedule, and renewable zones across the country aren't operational. And that's only some of the problems with power generation. When it comes to transmission, renewables need high-voltage lines and underground cables to substations that run from the source of the energy. It is then transmitted as low voltage electricity for use in homes and businesses. An adequate transmission grid is decades from completion. This week investment bank UBS estimates wholesale electricity costs will jump by 50 per cent over the next five years. Consumers will pay for that rise. Something will break, and most likely that will be Australia not meeting its carbon emissions targets unless there are some incredible, cheap technology breakthroughs in the next couple of years. Energy security needs to be like food security and national security - a reasoned debate, not necessarily bipartisan, but at least respectful. On this one, the major political parties should hang their heads in shame.   

Overnight Tesla's share price jumped ten per cent after the electric vehicle maker reported a second consecutive quarterly decline in deliveries on the back of slowing demand and tough competition from cheaper Chinese rivals. The good news is that the slowdown is less than expected, hence the surge in Tesla's share price. The company's stock is now up 35 per cent since June 11, though the value of the company is still around 60 per cent of its peak in November 2021. Tesla delivered 444,0000 vehicles in the three months to the end of June and is back as the number one EV maker in the world, after China's BYD said it delivered 426,000 vehicles. Major shareholder Elon Musk has had quite a run in recent weeks. Shareholders last month reapproved his $US56 billion pay packet, which had been struck down by a Delaware court. The company is moving to Texas and is being repositioned as a robotics and AI company - the robotaxi is supposed to be unveiled on August 8. Musk also runs Space X, X (formerly Twitter) and artificial intelligence start-up xAI. There still plenty of headwinds, not least being that customers seem to prefer hybrids to fully electric vehicles. But you have to admire the tenacity of Elon Musk.

5. USA: leader or laughing stock of the free world