New home sales surprised to the negative.

CNBC's Diana Olick reports:

Sales of newly built homes fell 7.8% from April were 3.7% lower than in May 2018, according to the U.S. Census. This number represents signed contracts, not closings, so it is a very recent indicator of buyers out shopping during the month.

It wasn't supposed to happen, even for a month's data print. Not amidst what many have been reporting to be a strong rebound in demand that buoyed builders starting in early Spring. And not when interest rates tracked progressively lower during May.

Softer interest rates, which equate to lower monthly payments, should have been a momentum trigger, but it seems now that more resale homes coming online in markets builders are active may have grabbed some of the mojo from new single-family residential demand.

And, by the way, what's going on with consumer confidence?

All of which highlights the obvious and ongoing rub: The mismatch builders face when they bring their new-home offerings to market at a median price of $308,000, versus median prices of existing homes of $222,000.

Almost a 40% difference between new and used.

Now, let's, once again, connect the dots between this economics issue and another.

At least some of the differential--the $86,000 that separates median new home prices and median resales prices--owes to the input cost premiums builders incur for semi-steady access to skilled labor crews in their active submarkets.

Pressure on these expense premiums is increasing as a widely recognized phenomenon--the "aging-out" of experienced and expert construction workers versus the relative trickle of new, young, "next generation" skilled crew members who're coming in as replacements.

Earlier this month, National Association of Home Builders chief economist Rob Dietz reported that:

" ... construction job openings increased in April, consistent with the ongoing challenge of the availability of labor for builders. The estimated number of job openings in the construction sector increased to 404,000, a post-Great Recession high. Moreover, this marks a significant gain over the 258,000 openings estimated in April 2018."

This is not simply a 2019 challenge. This is a five-plus year challenge, at best, and a forever challenge in a worst case scenario.

The Trump Administration this week responded--not exclusively to the construction industry's "labor shortage" but to America's growing crisis around matching young people to current employment opportunities. This Wall Street Journal piece summarizes a new job apprenticeship model that would subtract the Federal government from its role it programs, and instead hand over development, management, and measurement of apprenticeships to business groups, colleges, and "other entities." WSJ economics staffer Eric Morath notes:

In fiscal year 2018, there were 585,026 apprentices in the U.S., according to the Labor Department, a small number compared with the millions of Americans in college. Those apprentices took part in 23,441 different programs, mostly in the construction, military, public administration and manufacturing sectors.

The Labor Department projected that in 10 years, there could be 9,063 industry-recognized apprentice programs. It didn’t project how many trainees those programs would serve.

In the construction industry, the largest single sector for apprenticeships, those jobs can pay $60,000 a year or more. Better than three-quarters of existing federally administered apprenticeships are either in construction fields or part of military training, according to Labor Department data. Many construction workers are trained by labor unions.

Add to that, now, a new program Katerra is unveiling to up-skill both its own fast-growing workforce in construction expertise, and widen the net outside Katerra team members to train high-school and vocational school participants in accredited construction programs.

Katerra's press statement, out this morning, reads:

The Katerra Apprenticeship Program offers a combination of technical classroom instruction and hands-on training for a variety of trade occupations including carpentry, plumbing, electrical and HVAC. Apprenticeships for other occupations are anticipated in the future. The educational curriculum associated with each of Katerra’s programs is accredited through the National Center for Construction Education and Research (NCCER). While individual programs vary depending on the complexity of the occupation, all Katerra apprenticeship programs require approximately 144 hours of technical instruction per year and 2,000 hours of on-the-job training.

“Katerra is leading the construction industry in the application of new technologies and methodologies to deliver better quality buildings faster and more efficiently,” said Samantha Rist, head of self perform at Katerra. “We developed our apprenticeship program to train the next generation of construction workers to use cutting-edge tools and the latest technology. Now, Katerra apprentices can gain portable credentials for use throughout their careers, at Katerra and beyond.”

As part of the program, Katerra offers a series of week-long boot camps at its state-of-the-art factories for related technical instruction training modules. The boot camps – delivered in both English and Spanish – are designed to ensure each participant receives individualized support. English-as-Second Language (ESL) classes are also offered.

“The lack of skilled laborers is one of the biggest challenges the building sector faces,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn. “Apprenticeship programs like Katerra’s that offer portable credentials and teach new technologies are important as the industry seeks to broaden recruitment and increase interest in construction as a career.”

To ensure equal opportunity for training and development in the construction industry, Katerra partners with local organizations in the areas where it operates to recruit for its apprenticeship programs, including from local high schools, workforce development programs, the military, and general industry. Interested candidates can apply for employment at Katerra’s website.

In a brief conversation we had last evening, Katerra's Samantha Rist told me that Katerra has already been funnelling its current team members into pilot two-week immersion training programs, and evolved the boot-camp model to give more structure to its training commitment and investment.

"We currently employ 450 team members across 11 trades," said Rist. "We're early in the learning curve, starting with programs in four key trade areas--carpentry, plumbing, electrical and HVAC. We want to get our employees through the program, help them on the path to journeyman status where they've got expanded earnings power and resilience, and then extend beyond our workforce--both to attract prospects and to do the right thing for the industry."

Rist and Katerra are taking a step in the right direction, and Rist tells me that as its program evolves and meets its early-stage goals, it will expand its focus to cross-training its team members--not just in carpentry, for example, but in technologies related to the discipline that can help a skilled laborer weather up-and-down economic cycles in housing.

Because, as we know, while training and education is a big, five-plus year minimum challenge for the construction business community, it's only half the battle.

The other half--more urgent, more materially meaningful, and harder by leaps and bounds--is the challenge of attracting people into the field in the first place.

A triple-headed monster makes this half of the challenge equation matter the most:

  • Pay
  • Insecurity and dislocation during cyclical downturns
  • Physical difficulty and harsh job site conditions

That's a marketing challenge. Fortunately, there are more and more brilliant people working in the construction, investment, design, and development fields whose forte is marketing, so I don't think it's unsolvable.

But it probably accounts for why, today, the WSJ notes that there are only about a half-million American young people in apprenticeship programs, while there are millions and millions clamoring to attend college, only to come out with little more than tens of thousands of dollars of student loan obligations.