Hawai'i's construction industry should expand this year after all, according to a new economic report that revised a study last year that predicted a 2007 decline.

The report produced by the University of Hawai'i Economic Research Organization said that an unexpected surge in nonresidential building permits late last year is resulting in $500 million more in construction work that should sustain industry growth this year.

The economic study forecasts construction activity, measured in 2005 dollars, will rise this year by 4.4 percent to $6.6 billion. In an October report, a 1.9 percent decline was predicted.

Construction employment is now expected to rise 3 percent, or by 1,050 jobs, to 36,930 jobs, compared with the previous forecast for a 1 percent decline.

Construction costs are expected to rise 9 percent this year and 4 percent by 2009.

However, the previously expected industry contraction is still on its way, the report authors say, just not as quickly as they earlier thought.

"The overall slowing trend has been pushed back by one year," wrote report authors Carl Bonham, of the University of Hawai'i Economic Research Organization, and Bank of Hawaii chief economist Paul Brewbaker. "Hawai'i's construction cycle is near or past its peak."

The report forecasts roughly 3 percent construction spending declines in each of the next two years, and the construction job count reduced by 1,000, to 35,930 in 2009.

If realized, an end to the current growth cycle for the construction industry will put a dent in Hawai'i's $50 billion economy, for which construction has been a primary driver. Still, a 4 percent construction sector decline would not stop overall state economic growth.

Report authors said the tail end of the growth cycle was boosted by a 45 percent surge last year for nonresidential permits, which include hotels, time-share, warehouse and retail.

By contrast, residential construction permitting peaked in 2005, dragged down by home prices that more than doubled since 2000 and sapped demand for many hopeful buyers priced out of the market.

In 2005, residential permit values totaled $2.26 billion, about $1 billion more than nonresidential permits. Last year, residential permit values totaled $1.65 billion, less than the $1.78 billion in nonresidential permits, the report said.

This year, both residential and nonresidential permit values are expected to be down, contributing to the expected decline in spending next year. Government construction contracts are expected to be about flat.

The slackening in residential construction is related to demand that has softened for more than a year as prices appreciated beyond the reach or interest of many buyers, including owner-occupants and investors.

Home prices have been roughly flat over the past several months, but Bonham and Brewbaker predict the median resale price for single-family homes on O'ahu this year will decline by about 3 percent, to $611,000 this year from $630,000 last year, before resuming slow growth toward $630,000 by 2009.

The study also predicts the median price for O'ahu condo resales will rise by 3.5 percent, from $310,000 last year to $321,000 this year, then slip 1 percent to $318,000 next year.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.