Construction activity in Hawai'i will continue to grow next year, though the industry could peak within several years as higher prices, costs and interest rates take a toll on building activity, according to a forecast released yesterday.

Construction job growth is expected to top 8 percent this year with employment in the sector swelling to 31,750 jobs, according to the University of Hawai'i Economic Research Organization. Job growth is expected to slow to about 3 percent next year with overall employment rising to 32,700 jobs.

"I hope we're in for a couple of good, strong healthy years," said Kenneth Choate, executive vice president for homebuilder Haseko Construction Inc. "I think the influx of people will keep our industry chugging along and I just think the job market will remain good."

The value of private and public construction contracts should rise 8 percent to $3.99 billion next year, according to the UH economists. However, beyond 2006 higher interest rates, energy costs and the possibility of a slower U.S. economy could lead to a cooling in one of Hawai'i's hottest sectors.

"If interest rates go sky high all of a sudden, we could see some slowing" of activity, Choate said.

The construction industry, which is in its seventh year of growth, is among the state's largest sectors behind tourism and the military.

While construction remains strong higher costs coupled with high housing prices, which make homes less affordable, may mean lower demand and a possible peak in the building boom within the next several years, UHERO reported. The statewide median home prices have roughly doubled in the five or so years to $520,000 in June. That's $150,000 above the $370,000 home affordable to a household earning the median family income, according to Carl Bonham, an economist at the University of Hawai'i-Manoa.

Just how the current building boom ends remains to be seen, however a repeat of the 1990s bust following the collapse of the Japanese visitor and investment bubble is unlikely, Bonham said.

"We're forecasting a gradual slowing with no major shock that causes the bottom to fall out," he said.

Reach Sean Hao at shao@honoluluadvertiser.com.