BNZ Capital economist Stephen Toplis said that forecasters had been saying there was no hope for the global economy until such time that there was some evidence of stability in the United States and United Kingdom housing markets.
"That evidence is now there. Overlaying this is the fact that the New Zealand economy is benefiting from the lagged impact of a massive easing in monetary conditions."
Ironically, it was the housing market that was expected to drive the first stages of the economy's expansion, he said.
After a long period of excess, it appeared that housing had corrected sufficiently to allow a significant bounce in activity over the next 12 months.
However, there was more focus on the potential for an increase in construction activity than a resurgence in house price inflation.
If house price inflation started again, particularly if it was debt led, that would be a bad sign for the economy, implying that few had learnt anything from recent lessons.
It would condemn the household sector to a further correction, Mr Toplis said.
"Hopefully, the diminished supply of credit will keep inflation in check, but it is not a given, particularly if our expected supply response does not eventuate."
Stability in house sale turnover was occurring at a time when net migration was proving surprisingly strong and the supply of new building had wilted, he said.
Housing was a simple business.
Divide the number of people in the economy by the average number who typically lived in a house and add on the number of houses in need of replacement and the result was the number of houses needed to be built in any given year.
With birth and death rates fairly constant, the major determinant of population in any given period tended to be migration, Mr Toplis said.
New Zealand had been looking at a net inflow of 20,000 migrants a year but if recent monthly flows were sustained, a figure closer to 30,000 was likely.
The higher inflow was partly caused by New Zealanders seeing fewer opportunities offshore and staying home.
"While the demand for accommodation is thus increasing, it is happening at a time when dwelling approvals as a percentage of population have fallen to record lows. These lows suggest that, already, insufficient houses are being built to cater for likely demand."
Private consumption usually followed housing activity and Mr Toplis expected the cycle this time to be no different.
Household spending would be supported by falling interest rates and the recent tax cuts.
In addition, low or negative inflation across some goods and services would help prop up effective disposable income.
Spending should start to creep up by the end of the year, aided by net immigration, he said.
