Treasury yesterday gave its interim report on the economy and Crown finances.
The Half Year Economic and Fiscal Update shows the Government remains on track to post a surplus, albeit an exceptionally thin one of $86 million, in the next financial year.
Going into an election year, Mr English seized on signs of economic recovery to underline his Government's claimed record of solid economic management.
But fast-rising house prices, particularly in Auckland, have been a persistent economic headache for Mr English's Government which has tried to tackle the problem with a series of policies.
Yesterday he said there were "a few reasons" to believe house price inflation had peaked and while prices would still rise, the pace of those increases would slow.
Expectations that mortgage rates would go up next year had "got hold in the market over the last couple of months", he said.
There was also growing recognition that the Government had made a "thorough, detailed and long-term" attempt to fast track the supply of new homes with policies such as the special housing areas in Auckland and other cities.
The third factor was that with Auckland house prices rising at 15 per cent a year, people realised "it can't go on forever, it's going to stop somewhere".
Nationally, house prices as measured by Quotable Value are rising by just under 10 per cent but Treasury forecasts that will fall to 5 per cent by this time next year.
However, a risk to that was if New Zealand's recovering economy attracted more migrants than expected. That would increase demand for housing in economic hotspots Auckland and Christchurch and could push national house price inflation to 15 per cent next year - a level not seen since 2004.
That risk aside, Mr English said with economic growth forecast at 2.7 per cent next year and 3.6 per cent the year after, households had better prospects for wage increases than they had had for some time.
Household disposable income had increased by more than 8 per cent over the last four years in real terms and was forecast to rise by a further 10 per cent over the next four years, he said. Wages were expected to rise by 1 per cent a year in real terms for the next five years.
But he didn't expect somewhat brighter prospects would lead to households spending up large over the holidays. "Kiwi's have got pretty realistic over the past few years and they know if they overdo it now they're going to pay later when the kids start back at school.
"But why shouldn't they have a bit of confidence? They've been through a pretty tough time, they've done well, they can see things looking up - I hope they enjoy Christmas."
Labour finance spokesman David Parker said National had overlooked the interests of most New Zealanders.
"National conveniently seems to have forgotten that the overwhelming majority of New Zealanders aren't better off than they were five years ago. Wages are stagnating and job growth is lagging behind economic growth."
