Housing industry
strong and gaining,
say experts

By Lyn Danninger

Strong real estate resales and housing construction helped to carry the state's economy through last year and it's likely those sectors will continue to thrive at least for the next couple of years, according to Bank of Hawaii chief economist Paul Brewbaker.

Speaking yesterday at a forum presented by Bank of Hawaii and the Building Industry Association, Brewbaker dismissed the notion of a real estate bubble. Strong fundamentals in the economy and low interest rates have more to do with the record number of transactions than speculation, he said. And home buyers are recognizing good returns on their investment, said Brewbaker.

"If home prices didn't go up and generate returns over time you wouldn't buy, you'd rent," he said.

He also predicted prices in the current cycle would not reach the same heights as in previous investor-driven cycles. The current cycle will come to an end when prices eventually become too high and interest rates begin to rise, he said.

"I've given up trying to predict how low (interest rates will) go but the impact is obviously an incredible resurgence in sales activity and residential construction," he said.

Average homes in the middle range of the market are already starting to see good appreciation. It's no longer just the high end of market, he said.

All the demand is presenting challenges for developers. Also speaking at the forum, Mike Jones, president of Schuler Homes, estimated his average new buyer will now wait about eight months for a new home to be completed.

There have also been challenges in obtaining insurance, especially for subcontractors who are now faced with higher deductibles, the developers said. They now purchase so-called wrap insurance to cover everyone working on a project.

"We now buy insurance for all our contractors and subcontractors," said Stanford Carr, president of Stanford Carr Development LLC.

Craig Watase, president of the Building Industry Association notes the insurance crisis has already struck hard in some sectors of the market in California, particularly in the area of multifamily dwellings.

"A whole segment of the industry has now stopped there because no one will write general liability insurance for multifamily units," he said.

A shortage of skilled labor, especially acute on the neighbor islands, has had an impact on the pace and the price of construction, the developers said.

For example, on Maui there are only two qualified ironworkers under the age of 50, Jones said.

Brewbaker noted strong real estate activity has been occurring on the neighbor islands, where populations have grown by about 25 percent in the last 10 years. Jobs then caught up and what followed was a demand for housing, he said. The neighbor islands also felt relatively little impact from the events of Sept. 11 compared with Oahu.

But Oahu is catching up with its neighbors and local developers are scrambling to bring enough new product on line as resale inventory dips to lows not seen in years. Two to three years ago, inventory stood at about 20 months. Today, we are at about three and a half months, Brewbaker said.

With tightening inventory, Brewbaker predicted home prices will move up more rapidly in the next year or so.

"I think this is the first year of a couple of years of real good movement," he said.

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