As you know, Bank of Hawaii's Chief Economist Paul Brewbaker is one of our favorite economic analysts. His quarterly report on Hawaii is out and here are his key findings: 

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  A dramatic quarter of financial turbulence has concluded despite continuing fears over sub-prime mortgage contagion from the financial services sector into the real economy and confusion over valuations of complex financial structures. However, resilience in personal consumption expenditure and growth in net exports have offset adverse effects of declining residential investment, and real growth in the US economy near its potential—abating inflation risks—continues as our forecast.

This makes Brewbaker one of the more optimist forecasters..

Hawaii’s moderate economic growth forecast for the remaining years of the decade reflect the challenges that its principle export, tourism, faces against serious declines in foreign travel to the US, as well as overall capacity constraints. Complicating matters is the continuing drag of regulatory restrictions on economic activity.

In other words, we just can't grow much more in Hawaii at the moment. With regard to housing, here is Brewbaker's take:

Hawaii existing home sales prices have topped out for the cycle in conjunction with the sales and production declines…Hawaii.s current cyclical position relative to California valuations probably limits downside risk, compared to its cyclical position relative to California in the early-1990s.

This is a theme Brewbaker has sounded before. His research shows we are nine months behind California in the cycle.