The news is good - and bad - says the Bank of New Zealand's Tony Alexander.
We are now practically two years down the track from the collapse of Lehman Brothers investment bank and although the good news is that the much-feared Depression scenario was avoided, the bad news is that the track forward for all economies remains uncertain.
In the United States there is as yet no solid evidence that the housing market has turned upward, consumers remain unwilling to borrow or spend, and businesses are only rarely hiring people. In Europe, government budgets and debt levels are of high concern and there is intense attention on how societies most affected by fiscal austerity policies will react in the near future. In China, growth is strong but slowing as earlier stimulus measures are unwound. At least in Australia growth continues apace and the election outcome is highly unlikely to disturb the strong demand appearing for New Zealand-manufactured goods and tourist adventures in particular.
In New Zealand there is only scant evidence that households are spending more, businesses are reluctant to invest - especially in new buildings - and of course the housing market remains flat. Jobs growth for the past year has been zero, but the number of hours worked in total has risen 1.3 per cent. That means the labour market is improving and this is something we expect will become more obvious in the coming year as businesses lift hiring to meet economic growth in place of borrowing and putting new machinery in place.
The chances of finding a job will also be boosted by a growing outflow of people to the fast growing Australian economy - though for the housing market this is a double-edged sword, of course.
In recent months real estate turnover around the country has been quite weak and prices have flattened out after a period of rises last year when bargain hunters were active. There is an over-hang of property to go onto the market if conditions improve, and as they do we think these extra unhurried sellers will tend to keep prices flat.
But the key dynamic we continue to focus on is the one which strongly limited the decline in our housing market during the global crisis and which will become increasingly obvious over the coming year. We did not have a house building boom going into the crisis and, with about 23,000 new houses needed each year, construction is weak at just 16,000.
In the short term this does not mean all that much because the under-supply is small. But, as each month goes by and job security slowly improves while construction is below the level needed, awareness of the gap will encourage a few more buyers. The interesting point is then likely to be reached next year when more people choose to build but find the builders have already left for much higher returns in Australia.
None of this bespeaks of rapidly rising house prices because the under-supply is not all that large. But it does suggest continuing flat prices for the coming year then mild rises from the second half of 2011. Will rising interest rates act as a strong brake? Probably not because it has become clear that, with global economic conditions still wobbly, the constraint on borrowing is not the level of interest rates but willingness to contemplate more debt.
In addition the Reserve Bank is highly likely to slow down the pace of official cash rate rises in face of the evidence of no growth in debt demand and still wobbly economic conditions here and overseas.
Borrowers also face an interesting opportunity to lock in a fixed rate currently at much lower levels than anticipated because of reduced expectations that central banks overseas will be able to start tightening monetary policy anytime soon.
One interesting thing to keep an eye on is net migration flows. They started turning downward in February and the annual net gain has declined from 23,000 to 15,000 in six months. In a year the flow is likely to be below 5000 which compares with an average net gain for the past decade of 13,000. Auckland tends to be most affected by migration changes so this will be a negative. But, given that the greatest growth in dwelling construction last cycle was outside Auckland, we think price support in the area is going to be greater in the coming year - as it has been in the last - than most other parts of the country.
* Tony Alexander is BNZ's chief economist.
* From the New Zealand Herald's quarterly 'Property Report' - a guide to house prices and great places to live.
