HVAC contractors have weathered a challenging year, rife with product shortages, price increases, and the need to adapt their businesses quickly to a COVID-19 world. That same year saw a booming housing market, continuing into 2021. This strong housing market keeps some in the HVAC industry optimistic about future sales opportunities, as they see new construction and home renovation trends offering opportunities for HVAC contractors to both install and upgrade systems.

The Current Housing Situation

“Broadly speaking, the housing market has been on fire for the last year,” said Tim Fisher, team leader, market intelligence, HARDI. “There’s still a ton of demand right now for housing, and from an industry perspective, that’s great.”

Mortgage rates reached extreme lows in 2020 as a result of the COVID-19 pandemic and stimulus efforts. And while the rates are not at the record-setting lows they once were, the current 30-year rate averages around 3.31%, per businessinsider.com, still low enough to prompt significant residential demand. The supply of houses on the market is limited, driving up prices as people are moving from cities and looking to suburbs for homes. Those who were living in small apartments in the middle of an area like downtown New York may have been fine with it when they had other areas to socialize, but with the pandemic, some of those people are rethinking where they want to live, especially when work and private life may take place in the same location.

In addition to this, a large generation of early 30-somethings are looking for their first houses or are looking to upgrade homes as their families grow. The high residential demand, met with a comparatively low supply, is pushing new home construction to peak levels as well, according to Gary Elekes, co-owner, iMarket Solutions. This is especially strong in the South, Southwest, and West, part of which can be attributed to Baby Boomers reaching their retirement age and moving to new climates.

In addition to this, many of those staying in their current homes are looking to renovate, often due to needs arising from the pandemic, such as working from home or a greater awareness of their comfort. For those who did not have their employment interrupted, stimulus money and cancelled vacations could provide them extra money for an HVAC upgrade.

New construction brings HVAC installations and renovation bring system upgrade sales, both of which lead to sales for contractors.

Still, this presents challenges to contractors, especially in regards to keeping up with all of the work coming in a time where labor is hard to come by, and the pandemic has caused a range of product shortages and supply chain issues as well.

“Demand for residential new construction HVAC work has rapidly increased,” said Colleen Keyworth, director of sales and marketing, Online-Access Inc. “The flip side, however, is that skilled labor and materials are becoming almost impossible to acquire to complete those jobs.”

Taking Advantage

As the housing market presents large number of potential sales for the HVAC industry, how can contractors monetize this opportunity?

Robin LeBaron, president/CSO of Pearl Certification, said that contractors should become experts in high-performance homes.

“There is an incredible gap between the home as it could be given existing technology, and what homes are right now,” LeBaron said. “There’s so much opportunity to make homes energy-efficient, water-efficient, healthy, comfortable, smart, and resilient.”

People may understand a bit about solar panels or an indoor air quality device, but LeBaron believes most people don’t conceptualize the home as a holistic environment. Technological advancements in the HVAC industry, such as high-end efficiency, diagnostics, and purification, could offer a revolution in what a home consists of, but most people are unaware of this. If a homeowner is already thinking about renovating their home, contractors can carry the conversation a step further and discuss other upgrades that the homeowner may not have even initially considered.

This also affects how contractors approach service and maintenance. Rather than seeing an uncomfortable home and simply offering a system repair or replacement, contractors can offer the proper solution, then point out how improvements in other areas (ductwork, indoor air quality, etc.) could make the home even more comfortable and efficient.

Elekes explained that contractors should be sure to have a good digital footprint. When people are looking for a contractor for an upgrade or renovation, they are more and more searching for businesses using the Internet. Contractors without a substantial digital footprint (SEO and social media, for example) will miss a significant amount of potential leads. Marketing funds can be used for social media or organic search ads, which tend to have high conversion rates and low costs per yield, though traditional media is also a good option.

Contractors who struggle to find the labor to keep up with a burgeoning market can look into working with their local tech schools to grow their own workforce organically. Technicians and contractors expect the summer to be busy, but the housing market is already forcing some contractors to adapt to keep up with the workload, earlier than usual. Elekes explained that flex schedules can be used to help keep pace with the work, as well as increased wages to compensate employees putting in a lot of their time. The ideal, if possible, is to hire more workers. “I have seen contractors excel during this housing demand in working with local realtor associations and creating specials mechanical/plumbing inspection offers for new homeowners,” said Keyworth. “With new homes popping up and older homes changing hands rapidly, something as simple as equipment stickers on units can be used to introduce yourself to future homeowners as their trusted service provider.” Even if a contractor finds themselves in an area that is seeing an outflow of people and a receding market, growth into a declining market is possible, said Elekes. Contractors could consider acquisitions to expand their customer base.

Other Housing Trends

HVAC contractors may have their eyes on the housing market for sales, but LeBaron explained that there are other housing trends contractors should keep in mind. The drive for sustainability has led more and more states to talk seriously about movements to electrification, meaning contractors should be thinking about technologies like heat pumps and solar. Smart home systems can monitor electricity consumption data and pass that onto consumers for savings.

Homeowners are also seeing natural disasters, such as wildfires, hurricanes, and extreme cold weather, which is getting more people interested in designing their home to be able to operate even in the event of cataclysmic weather. This is also driving interest in solar, as well as in battery technology that can be utilized by the home for energy if a situation calls for it.

Housing and Distribution

The distribution side of HVAC is undergoing something similar to HVAC contractors: boosted sales due to the aforementioned trends, but also struggles to keep products available in a time of shortages, supply chain disruptions, and price increases.

“As of the beginning of January through now, there's just been a huge spike in the cost of materials to build a home,” said HARDI’s Fisher. “And layering into that, there’s all of the appliances then that need to go into that home — it's tough to find a lot of those — and HVAC equipment fits that mold.”

Distributors are working to procure products with the awareness that as homes are being built, a contractor will purchase from a competitor if their typical distributor doesn’t have the unit that is needed. As a result of the pandemic, indoor air quality products and products that will improve ventilation, such as dedicated outdoor air systems, are seeing especially notable demand.