Construction industry has yet to hit bottom
POSTED: Friday, September 11, 2009
Hawaii's construction industry will hit bottom next year but is on track for recovery beginning in 2011, according to a construction forecast from the University of Hawaii Economic Research Organization.
A noteworthy projection not included in the report is that home prices are likely to double within 10 years.
“;Between 2017 and 2020, the median home price will be over a million (dollars), said Carl Bonham, UHERO executive director. “;When we get to the peak of the next housing cycle, home prices will have doubled again,”; as they did from 1998 to 2006.
The housing affordability index, expected to end the year at 76 percent, means a household with the median income will be able to afford a single-family home that costs no more than 76 percent of the median home price.
Due to an anticipated rise in mortgage rates and additional factors, the affordability index will likely be at 50 percent or below by 2017 or 2018, “;so the most affordable time (to buy a single-family home) is probably this year and next year,”; Bonham said. The last time the index exceeded 100 percent was in 2001.
For 2010, UHERO projects Oahu median home prices will slip only 2.4 percent, as opposed to the 4.9 percent drop projected in its March report.
Residential building permits are now projected to fall 44 percent, 10 percentage points lower than its March forecast; and it has pushed back by a year its forecast for a surge in federal and state infrastructure spending.
Year-to-date nonresidential construction permits, valued at $811 million, are 24 percent lower than the same time last year.
The projection for inflation in construction costs has been lowered to 1 percent for 2009 and 2010, and the study's forecast for construction jobs also has been lowered to minus 14 percent, lower than the 10 percent drop forecast in its March report.
Nevertheless, Bonham sees reason for optimism.
“;We don't think things are going to continue to fall at the same rate as they have,”; he said.
He did not invoke the increasingly popular term “;green shoots”; to describe Hawaii's situation.
The terminology “;is supposed to imply the beginning of growth”; and has been misused almost from the start, Bonham said. What most people meant was “;things weren't falling as fast as they were,”; he said.
“;For the rest of the country, 'green shoots' is now appropriate in terms of industrial production—output is going up ... and there are signs of rising home prices and sales are increasing nationally, but you don't really have that yet for Hawaii, particularly in construction.”;
In the 1990s Hawaii had 11,000 licensed contractors, “;but by the late '90s we went down to 5,500,”; said Karen Nakamura, chief executive officer of the Building Industry Association of Hawaii.
“;Even in the boom that we just had, we are only at 6,600.”;
Bonham noted that the mainland's economy is in recovery but remains “;very fragile, and Hawaii is not in recovery yet and our economy is still quite fragile.”;
“;It won't take much to make things come out worse,”; he said.
BETTER DAYS AHEAD
The University of Hawaii Economic Research Organization sees a 2011 economic recovery after the construction industy hits bottom next year:
|
|
2009 | PCT. CHANGE | 2010 | PCT. CHANGE
|
Construction jobs
| 32,680 | -14.1% | 30,380 | -7.0% |
| Real construction spending | $6.35B | -20.5% | $5.31B | -16.4% |
| Total building permits | $2.85B | -26.2% | $3.12B | +9.7%* |
| Residential building pemits | $777M | -43.7% | $746M | -4.0% |
| Non-residential permits | $1.08B | -29.5% | $1.02B | -5.1% |
| Oahu median home price | $565,260 | -8.7% | $551,600 | -2.4% |
| Oahu median condo price | $300,820 | -7.0% | $274,290 | -8.8% |
* Government contracts expected to jump 36.3% in 2010
Source: UHERO
