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HVAC Contractors Need to Adapt to Repair Market
Repair or replace is a question homeowners often need
to answer, and it greatly impacts an HVAC contractor's
business. During COVID, the residential HVAC industry
saw a replacement market boom. But in 2023 and now
the beginning of 2024, there has been a shift to a repair
market that HVAC contractors need to be aware of as
they run their businesses.
According to numbers from the Air-Conditioning, Heating
and Refrigeration Institute (AHRI), shipments of unitary
air conditioners and heat pumps were down 16.7% in
2023, compared to 2022. Gas furnaces were down 23%.
"The replacement market is performing worse when you
strip out new construction," said industry leader Matt
Michel. "Housing starts were down around 5%, according
to the St. Louis Federal Reserve, so the replacement
market for unitary air conditioners and heat pumps was
down in the low 20s."
Distributors are seeing similar numbers, according to the
Heating, Air-conditioning, & Refrigeration Distributors
International (HARDI).
"We definitely are seeing a shift here. And that shift has
actually been visible for some time," said Tim Fisher,
HARDI director of market intelligence.
HARDI receives data from FieldEdge on the invoice and
quote trends exhibited by their users. Invoices reflect
work that has been completed, whereas quotes reflect
potential future work and are most often provided for new
system installations. HARDI has found that, over time,
the ratio of new invoices to new quotes is a useful
indicator of whether a market is trending more toward
repair than replace and vice versa.
The numbers show the annual growth rate bottomed out
in the spring of 2022 but remained negative through most
of the year, indicating that replacement trends were
broadly higher in 2022 than in 2021. That figure
increased through 2023, peaking in May but generally
remaining positive for most of the year. While the
three-month growth rate has slowed in recent months —
an encouraging sign — they don't expect much of a
negative drift in 2024, meaning that repair versus replace
trends will broadly remain similar to where they were in
2023.
So why is this change happening? It can't be attributed to
any single factor but rather a combination of items.
Certainly, higher costs of both HVAC systems and
housing in general play a role.
"Adapting to the economy is something contractors need
to do. We can't just assume people are going to reach
into their pocket and replace," said ACCA CEO Bart
James. "Contractors need to help customers get through
the current need. People are slowing down on their spending. People are worried about what is coming and
how they are preparing for it. Wages and other things are
not keeping up with how fast prices are going up."
James said reading the numbers shows there is a shift in
the home improvement market.
"Just look at the Walmart and Home Depot quarterly
projections. Walmart did well with more visits but had
smaller purchases, while Home Depot did not hit their
numbers. That tells you that people are handling
investments into housing differently. That will catch up
with HVAC, too. "Contractors need to prepare by making
investments in their team to meet the needs of the
customer. And that need is not always a replacement
option but also can be a repair option," James continued.
The sluggish home resale market is another reason for
the shift towards a repair market. "Home improvement
spending, in aggregate, tends to follow existing home
sales totals nationally," Fisher said. "People invest more
in their homes prior to selling to boost its value, and new
homeowners spend more in their first year of moving than
homeowners who stay put. This has major implications
for HVAC replacement demand, which, historically, peaks
when existing home sales are at their highest and falls off
when existing home sales decline.
"Both the 3-month and 12-month growth rates bottomed
out earlier in 2023, and while still negative, have slowed
significantly," he continued. "We believe that home sale
totals are at or nearing their trough, and over the duration
of 2024 should steadily improve and finish at or ahead of
2023 totals."
The final reason is the cyclical nature of HVAC. It reflects
the shipment cliff from 15 years ago, when the industry
contracted 40% after peak shipments in 2005.
Contractors cannot replace what was never installed.
How do HVAC contractors deal with this shift? Michel
believes they should embrace the repair market.
"The money is better in replacements," he said. "It always
has been and always will be. However, margins are
better in service. For the next couple of years, anyway,
contractors should focus on building up their service
business and making money on it."
Since service involves more labor, and labor carries more
overhead than equipment and material, keeping a close
watch on overhead expenses is a must.
"Contractors need to build the service base, watch your
marketing expenses drop, and down the road, the
replacement margins and close rates to a satisfied
service base will rise," Michel said. "Once we get past the
shipment cliff, the replacement market will begin a
decade-long run with every year being better than the
year before it. We know this because it's what happened
in the past, and when it comes to replacements, the past
truly is a prologue."
Contractors in most parts of the country are already
feeling the pinch of a slower market, and their
experiences in 2024 are unlikely to be much different
from their experiences in 2023 though rebounds from the milder temperatures we saw during peak months last
year would go a long way in improving demand in 2024.
HARDI advises contractors should consider the following
six tactics in '24:
- •Offer financing options: Any
homeowner considering a new system is likely going to
feel some sticker shock if it's been a few years since they
- last bought a system. Financing a new system helps to
alleviate that shock, making the big sticker prices much
more palatable monthly payments.
- •Protect margins: Work to ensure that your
pricing for jobs is consistent with market trends, and
attempt to pass through as much of the higher system
costs as possible. Likewise, now is a critical time to
manage operating expenses closely. Together, good cost
management and smart pricing can help protect
business margins in 2024.
- •Educate homeowners: Many homeowners
may not fully understand the long-term benefits of
replacing their HVAC system versus frequent repairs.
Offer educational materials, such as blog posts, videos,
or pamphlets, explaining the advantages of a new system
- in terms of energy efficiency, lower maintenance costs,
and improved IAQ. Also, be sure to make clear to your
customers which incentives they may qualify for through
IRA or other state-level rebate/incentive programs.
- •Focus on value proposition: Emphasize the
value proposition of a new HVAC system, highlighting its
reliability, longevity, and performance. Help homeowners
understand that investing in a replacement now can save
them money and hassle in the long run.
- •Offer maintenance packages: Create
maintenance packages that bundle regular servicing with
discounts on repairs or replacements. This can
encourage homeowners to invest in preventive
maintenance and build a long-term relationship with your
company.
- •Diversify services: Explore diversifying your
services beyond just HVAC installations and repairs. For
example, you could offer IAQ assessments, smart
thermostat installations, or energy audits to provide
additional value to homeowners and generate new
revenue streams.
https://www.achrnews.com/articles/154324-hvac-contractors-need-to-ad apt-to-repair-market
Based on the provided text, analyze the morphological
structure of the word "replacement" and select the correct
alternative that describes its structure:
