First it was real estate. Then tourism. Now home construction, an important part of Hawai'i's economy, is showing signs of cooling down from the accelerated pace of the past few years.

"Overall, it's still a healthy market. We're just not seeing the same frenzy that we saw 18 months or two years ago," said Bruce Barrett, executive vice president for residential operations at Castle & Cooke Homes.

The value of residential construction permits, which typically is volatile, fell 16 percent in the fourth quarter to $390.1 million, according to seasonally adjusted state figures provided by Bank of Hawaii. That followed a 5 percent drop in the prior quarter. That was partially offset by an increase in commercial and home addition/remodeling permits.

Some economists have predicted for months that a home building slowdown was looming.

"A turning point is hard to identify while it is happening," said Paul Brewbaker, Bank of Hawaii's chief economist. "We were looking at it earlier and forecasting it earlier, but now it's starting to resonate."

The decline, which is expected to remain moderate this year, is driven by high home prices, which in turn makes homes less affordable, Brewbaker said. O'ahu's housing market ended 2006 with higher prices, but total sales of existing homes fell for the first time in a decade. A rise in home building material costs only exacerbates the problem by lowering home builder investments because of lower rates of return.

"It's all about home prices," Brewbaker said. "Once you see home prices flattening, you have to know that construction will slow two years later, and that's where we are today."

Castle & Cooke Homes has seen a shift in buyer demand away from higher-priced single-family homes to lower-priced multifamily homes, said Barrett. The company expects to deliver more homes to customers this year, but at lower-per-home prices.

Not all home builders are seeing the shift. D.R. Horton Schuler reported no significant difference in sales of O'ahu and Neighbor Island developments.

But lower demand for wood construction materials led tug and barge operator Sause Brothers last fall to reduce the frequency of Hawai'i shipments from once every two weeks to once every three weeks.

"By no means is this a precipitous drop" in demand, said John Sweet, Sause's marketing manager for wood products. But, "we're probably a fair barometer of what's happening. These booms don't last forever. I'm surprised this one lasted as long as it did."

STRONG ECONOMY

Economists aren't forecasting a repeat of Hawai'i's real estate bust of the 1990s, which was driven by economic downturns, first in the Japanese economy and then in the Mainland economy. Hawai'i's economy is expected to remain strong and interest rates are forecast to remain moderate.

Growth in tourism, the state's No. 1 industry, has stalled after reaching a peak of 7.4 million visitors in 2004. Visitor arrivals fell 5.7 percent to 561,691 visitors in January, the latest month for which figures are available. Visitor spending fell to $1 billion in January, a 1.4 percent decline from January 2006.

University of Hawai'i economist Carl Bonham said home prices could fall 5 percent this year after several years of growth.

"Everybody knows that things are slowing," he said. "The real question is how hard are things going to come down?

"The last cycle was a bubble so there was a lot more that needed to be let out of it. That's not what we're looking at now," Bonham said.

Last year, single-family homes sold for a median price of $630,000, or 7 percent more than $610,000 in 2005, according to Honolulu Board of Realtors. The median is the point at which half the prices were higher and half lower. For condominiums, the median was $310,000, up 15 percent from $305,000 during the same comparable period.

SLOWER JOB GROWTH

In addition to lower home values, a home-building slowdown means residential construction will no longer be an important contributor to job and income growth, Bonham said. Construction jobs are expected to increase less than 1 percent in 2007 following a 7.6 percent rise in 2006, according to the UH Economic Research Organization.

For homeowners and home builders, a slowdown in home construction could make it easier to find contractors and other skilled tradespeople. However, that has yet to occur, said Castle & Cooke's Barrett.

"We haven't seen any significant change (in the availability of contractors), but we're anticipating we will seem some change in the future," he said.

Reach Sean Hao at shao@honoluluadvertiser.com.