UH economists say
home prices peaked

Home prices, which have passed $500,000 on Oahu and Maui, likely peaked last year, according to a new report by two University of Hawaii economists.

In their annual Hawaii Forecast, Carl Bonham and Byron Gangnes of the UH Economic Research Organization said higher interest rates and high home prices will likely slow growth in that sector this year.

"The impetus to growth will shift increasingly toward military construction," Bonham and Gangnes wrote. "Low vacancy rates -- 2 percent recently -- may also spur new industrial construction."

Overall, Hawaii's booming economy should have another good year in 2005 with growth in several industries, including construction and retail, according to the report released yesterday.

Bonham and Gangnes said the state "is set for a continuation of last year's robust growth."

The economists wrote, "2004 was a great year for the tourism industry; this year should be even better."

Bonham and Gangnes note that after a slowdown in 2004, the U.S. economy is expected to improve, although they are concerned about economic weakness in Japan.

The strong areas for job and income growth this year will be in construction, the wholesale and retail trade, health care, service areas, accommodations and food service, the report said.

The biggest risks to Hawaii's economy are energy costs and security concerns, wrote Bonham and Gangnes, who noted that oil prices have not gone down, the Federal Reserve could increase interest rates further and a worsening situation in Iraq could bring more disruption to Hawaii's military communities and tourism industry.

The report, however, said that tourism will continue to match its strong levels from last year, with the number of airline passengers from the U.S. market so far running 7.8 percent above last year's levels. The number of visitors from Japan coming to Hawaii is 10.2 percent above last year's level so far, the report said.

The economists said they expect growth of 4 percent this year in the number of U.S. visitors, a figure they predict will slow to 1 percent growth next year. The number of arrivals from Japan is predicted to grow by 8 percent this year, and slow to a little more than 3 percent in 2006, they said.

Growth is also expected in personal incomes and the number of jobs, although people moving to the state and other labor constraints will cause a gradual slowing of job growth, they said.