WAILUKU - While keeping a wary eye on Washington politicians and acknowledging U.S. and global economic turmoil, University of Hawaii economists nevertheless predict modest growth in 2012 in an annual Hawaii forecast released today.
"Hawaii's recovery has slowed, but not stopped," the economists say in their conclusion. "We expect growth to continue in 2012, although at a somewhat slower pace than earlier projected.
"The substantial weakening that has occurred in the U.S. and Europe, the blow to confidence from D.C. theatrics and the looming fiscal contraction weigh on growth prospects. At the same time, we now have some local growth momentum, with job gains now under way and an ongoing boom in non-Japanese foreign travel."
Realtors Donna (from right) and Bob Hansen speak with client Eric Barto on Thursday afternoon in the Kula home he has listed with them for $4.5 million. Bob Hansen said he thinks Maui’s real estate market has hit bottom, with a smaller inventory of quality properties available.
The Maui News MATTHEW THAYER photo
The economists also deliver an ominous cautionary note.
"There is a significant risk that things will turn out much worse than this," they say. "While our view is that the U.S. will avoid an outright recession, clearly the risk has risen substantially in just the past few months."
The economists blamed Washington, saying: "Too bad that much of this is self-inflicted by a U.S. Congress that at best is placing principle over pragmatism, and at worst is interested only in short-term partisan gain regardless of cost."
There are only a few places in the 26-page forecast in which Maui is mentioned specifically.
In a section covering future construction projects, the economists report that Kyo-ya Hotels & Resorts "has plans for a major redevelopment of its Sheraton Maui property, although these appear to be at an early stage."
When asked about plans for the Kaanapali property, Kyo-ya Co. President Greg Dickhens said the owner's redevelopment plans for the Sheraton Maui are 3 years old and currently on hold, perhaps for a couple more years. Those plans involved an expansion of the hotel and the addition of condominium units, he said.
Now, Kyo-ya is focusing on its project to redevelop the Sheraton Princess Kaiulani in Waikiki, he said.
This month, the Sheraton Maui will begin an approximately $7 million project to renovate its guest rooms, Dickhens said. That project is targeted for completion in mid-December, before the busy Christmas holiday season.
Statewide, the near-term prospects for construction "remain limited," the university economists say. Despite a few "largish projects," a Safeway store in Honolulu and two assisted-living facilities on Oahu, "nonresidential construction has been weak, down more than 13 percent in the first half of the year," they say.
But they say that on a statewide basis, conditions in the construction sector appear to have stabilized, "although there is not yet evidence of significant improvement."
They point out that July employment in the construction industry was up about 700 jobs from the beginning of the year, and that was 1 percent higher than the level seen in July 2010.
However, "apart from some gains since mid-2010 on Kauai, most of the added jobs have been on Oahu," the economists report. "Year-on-year construction job losses continue to occur on Maui and the Big Island. The overall level of construction activity remains depressed."
The contracting tax base in the first quarter of this year, $1.4 billion, was about 30 percent lower than its level at the cyclical peak in mid-2008, they say.
The economists report that the market for residential real estate in Hawaii "continues to be quite soft, with fluctuating sales volume but no recovery yet in prices."
Statewide, the volume of single-family home resales in the first half of the year was 1.3 percent lower than in the first half of 2010, the economists say, citing data from Prudential Locations. The statewide median price was 2.8 percent lower than the same period of 2010. Condominium sales were up 1.1 percent, with the median price down 6.1 percent.
On Maui in July, the median single-family home cost $410,001 down 18 percent from the $500,000 median price a year earlier, according to the Realtors Association of Maui. The volume of sales was slightly higher, however, with 61 single-family sales on Maui in July 2010 and 65 sales in July. Maui condominium prices also were down, with a $325,000 median price in July, or nearly 16.7 percent less than the $390,000 price for the same month a year earlier.
"Neighbor Island (real estate) markets have yet to show the signs of stabilization we see on Oahu," the economists say in their forecast. "Their continued decline reflects the aftereffects of their more pronounced building cycles during the past construction upswing, and, related to this, their relatively larger volume of distressed sales."
(Last week, Pacific Business News reported that more than 39 percent of all home sales in Maui County in the second quarter were foreclosures. The 250 foreclosure sales on Maui, Molokai and Lanai represented an 8 percent increase from the second quarter of 2010, it reported. Maui County's foreclosure sales percentage outpaced the state's three other counties: Kauai, 33 percent foreclosure sales; the Big Island, 27 percent; and Oahu, 13 percent.)
The UH economists report: "There is no clear sign of a bottom for prices, with first-half, single-family home sale prices down nearly 6 percent on Maui and 4 percent on the Big Island. Prevailing single-family home prices are now 42 to 43 percent below peak in these counties."
They point out that the U.S. home price index for May was 32 percent below the peak reached in June 2006.
Realtor Bob Hansen, who has been selling Maui real estate for 22 years, said Thursday that he believes that Maui's real estate market has hit bottom.
"Prices are going up very, very slowly generally speaking," he said, which is a trend he expects to continue.
Hansen said there's 20 percent less inventory now than there was a year ago, and when supply gets short, prices go up.
Another 20 percent of the inventory is in escrow, he said, "so you can see how fast inventory is shrinking. That is kind of unprecedented."
As usual, luxury properties in Wailea and elsewhere are expected to lead Maui out of the recession, Hansen said.
Hansen's wife, Donna, also a Realtor, said it's becoming difficult to find decent properties in the $300,000 to $500,000 range. Many bank-owned, foreclosed properties are not maintained or have been stripped of light fixtures, appliances and even kitchen cabinets, she said.
"Finding something that's not trashed is not easy," she said.
The UH economists say they've also been watching the impact of foreclosed properties on island real estate markets, which also has had the effect of drawing some buyers into the market.
"Neighbor Island sales activity has picked up a bit over the past two years as homebuyers with available resources shop for bargains," the economists say. "On Maui, areas with high-end homes, including Kapalua, Wailea-Makena and Maui Meadows, saw increases in median prices in 2010, even as the island as a whole saw a net price decline. Somewhat encouragingly, we are now beginning to hear anecdotal evidence of a return of offshore money, particularly from Canada, into Neighbor Island real estate markets."
Donna Hansen echoed that, saying she and her husband have been working real estate deals with Canadians, Australians and a few from New Zealand and even England.
"There's a lot of international buyers . . . We're seeing that influx of money," she said. "It has made a huge impact on the supply."
The economists predict that visitors from countries other than the United States and Japan "will continue to be a bright spot, rising 16 percent this year and averaging roughly 5 percent annual growth over the next three years."
Earlier this month, the Hawai'i Tourism Authority reported that visitors to Maui from Canada were able to nearly offset declines of tourists from the United States and Japan. Spotting the trend, the Maui Visitors Bureau has been marketing the island heavily recently in Canada.
Meanwhile, the administration of Mayor Alan Arakawa has reached out to tourism leaders in South Korea to encourage travel from its rising affluent middle and upper class to Maui County.
The university economists say that statewide, "the tourism recovery is now behind us, and further industry gains will be more incremental."
"Job growth will continue to occur in many areas of the economy, but not at a pace that will rapidly alleviate unemployment," the economists report.
They say seasonally adjusted unemployment hovers around 9 percent in Hawaii County, higher than 8 percent on Kauai, in the mid-7 percent range in Maui County and 5 percent on Oahu. By comparison, unemployment rates averaged from 2.2 to 3.1 percent across counties in 2007.
* Brian Perry can be reached at email@example.com.