The end of the mental recession?

With houses prices hitting new highs in our main cities, is the sense of economic gloom finally lifting from New Zealand? And what implications might that have for MPs?

It's been coming for a while, but QV has now confirmed that our love affair with bricks and mortar is back at record levels. In Auckland and Christchurch we've raised the roof on house prices above the previous peak in 2007, with average house values of $529,508 and $388,629 in the respective cities.

Can we now say that New Zealand has turned an economic and psychological corner? Perhaps I'm over-egging a few numbers, but hear me out.

The great recession that swept the world after the credit crunch began early in New Zealand, in part because of drought and the bursting of our own housing bubble off those 2007 highs. Although it was less a bubble burst and more an evaporation, as it turned out. Housing prices slid and stalled, but never really crashed.

New Zealanders stayed put, buckled down, started saving. Bill English was delighted and started talking about implementing policies that pushed New Zealanders in the direction they were already going.

We came out of recession in 2009, but only just and only in fiscal terms. Growth has been 0.1 percent here, a bit more there. In our minds, the recession has dragged on as we've watched the rest of the western world mired in debt and austerity.

Confidence, however, seems to be stirring in business and now in the housing market. While the national picture is actually showing a slight easing in price rises, after a year of month-on-month price rises, it's significant that the number of sales is the highest since 2009 and we've got new peaks in our two largest cities.

QV's research director Jonno Ingerson says:

"Activity levels have been bolstered by first-home buyers having enough confidence to enter the market, while some existing homeowners are now ready to make a move they may have been delaying for several years."

So the mood isn't what it was. People are showing signs of spending again and taking debt again. Banks are back to their old tricks offering more 90% mortgages.

So have we learnt our lesson? Only time will tell.

But this is a sign of a turning point that suggests the end of the mental recession; that could change the game politically.

In the US, petrol prices and presidential approval ratings are highly correlated. I wonder if there's a similar match here between house prices and government popularity? We are so hung up on housing.

Either way, a more bullish mood will have political implications.

On the plus side for National, strengthening economies are broadly a plus for incumbent governments for obvious reasons - voters like jobs and money. On the downside, English will be concerned if our commitment to saving is showing signs of slipping.

Greater confidence would also have to prompt a re-think of National's political tactics. It's been very effective arguing that the stifled economy - which is the world's fault, not the government's you understand - means there's no room for spending. It's an argument most recently used this week regarding extending paid parental leave.

But is the public appetite for that line ebbing? If so, economic confidence could come at a cost to the government, as voters start to look more sceptically at more promises of austerity and zero budgets. English has positioned himself essentially as a cutter, a 'do more with less' kinda guy for the tough times. Can he adapt?

Sure, a willingness to spend your own money is not necessarily a sign you want your government to spend more. But the fundamental mindset here is crucial.

The Greens and Labour have opportunities to exploit such a changing mood by pushing for smart spending, more middle class support; Sue Moroney nibbled at that with her claim this week that it was the right time to extend paid parental leave because under her bill the full cost wouldn't kick-in until the government intends to be back in surplus in 2014/15.

It'll be interesting to see where the public mood goes on this - do we still want a government with the brakes on or is our willingness to start spending big on property again a sign that spending of all sorts is coming back into vogue?