Despite a lot of uncertainty in other areas of the economy, the HVAC industry continues to put up strong numbers, as evident by new findings just released by Yelp and Zillow.

New Construction Staying Hot

According to a new report from Zillow, right now, approximately 23% of U.S. adults say they intend to buy a home in the next year,  “…but only about 5% have succeeded in any given recent year.” Put another way, “roughly 34 million prospective buyers are competing for no more than 6 million homes – about 4 million of which are existing construction,” Zillow’s new report states.

With that obvious gap between supply and demand, Zillow is expecting the new-build market to have an ample customer base for the year ahead.

“Many aspiring homeowners report a strong desire to buy a newly built home and a willingness to tap multiple sources to pay for it, even in the face of stiff affordability challenges,” the report states.

In its 2024 New Construction Consumer Housing Trends Report, based on a 2023 survey of 6,500 buyers who had purchased a home in the past two years, Zillow found that 2,500 of the purchases were new construction.

“The findings suggest that builders have reason for optimism, provided they can continue to meet the moment by helping buyers keep monthly costs down in the face of rising land and labor costs, labor shortages, and the one-two punch of rising home prices and interest rates,” the report states.

The report also listed a number of key findings for 2024:

• 89% of new construction buyers say that staying within their initial budget is highly important.
• 42% of new construction buyers were only interested in exploring new construction homes when they started their search — a trend that has grown for three straight years.
• 60% of new construction buyers said they moved into a new subdivision, down from 67% a year prior. The share of new construction purchases in existing communities increased for the third consecutive year.
• 63% of buyers viewed smart home capabilities as highly important.
• Nearly 3 in 4 new construction buyers have a pet — the most common being a dog — and those pets play a big role in buyer decisions.

Compared to last year’s data, Zillow found a 9% increase in the number of buyers who say an energy-efficient home is important to them.

Demographics-wise, the 30-39 bracket held the highest share of new construction buyers (30%), followed by 40-49 (22%), 18-29 (14%), a tie for 50-59 and 60-69 (13%), and 70-plus rounding it out at 9%.

New construction buyers tend to have a higher level of education than the overall population of U.S. adults, with 81% having attended college in some form and 55% having a four-year degree or higher.

Smart Products Gaining Steam

There’s also good news for HVAC contractors who are selling and installing energy-efficient equipment: 61% said energy efficiency was in their top three deciding factors (with 11% saying it was the No. 1 reason), and, when it comes to features, “has air conditioning” came in at No. 2 and “was energy efficient” at No. 3, only being beaten out by “was within my initial budget.”

Additionally, smart home features, which go hand-in-hand with energy efficiency, are also gaining in popularity.

“Since 2019, shifts in buyer preferences around smart home capabilities and energy efficient homes appear to have staying power,” the report states. “In 2019, just 34% of new construction buyers considered smart home capabilities highly important. In 2023, that skyrocketed to 63%. The desire for energy efficiency increased 10 percentage points over the same time period. And shared community amenities, which may have been taken for granted prior to the pandemic, jumped 20 percentage points since 2019.”

Overall, the report paints a pretty rosy picture of the future of new construction.

“One big surprise was the increase in housing starts that we saw at the start of 2023,” Zillow Senior Economist Orphe Divounguy said. “Builders realized that existing homes weren’t coming on the market and that there was still enough demand out there — or potential demand out there, so they started building again.”

More Demand Means More Opportunity

In 2023, Yelp reported it saw a new all-time high in business openings, which it says is signaling a new era of post-COVID recovery.

“Eight months into the current year, our latest analysis provides early insight into the direction of new business growth in 2024 across the U.S., with the number of new businesses beating pre-pandemic levels (up 40% from 2019) while year-over-year growth has slowed (down 3%) compared to 2023,” the report stated.

This business-stabilization phenomenon was largely driven by the home service industry, which it reported is the only category to see growth (up 11%) over last year’s numbers, leading in total business openings with 217,000.

“Services driving this new business growth include renter-friendly home upgrade projects, as many Americans remain priced out of the home market, and weatherproofing services that make homes more resilient to increasingly frequent extreme weather events,” the report states. “Yelp data also reveals the fastest-growing services brands leading this growth — from HVAC and plumbing, to lawn care and pet care services.”

The study shows that home services found themselves at the top for new business openings in every state, but surprisingly, it was some of the smaller populations that saw the biggest numbers.

“While business growth remains healthy in the most populated states, with California leading the way (26K openings), followed by Florida (24K) and Texas (22K), the states with the highest percentage growth in home services businesses are less populous,” the report states. “South Dakota saw a 39% increase in home services openings, with Arkansas and Vermont increasing 35% and 28%, respectively.”

The Bigger Picture

Even though the Federal Reserve made an aggressive decision and announced a half-point interest rate cut, the first since 2020, many renters are still finding themselves priced out of the housing market, while those homeowners who struck gold with low, pre-COVID rates don’t plan on going anywhere anytime soon.

For the HVAC industry, those homeowners who have decided to stay put are turning into lucrative clients.

“As consumers opt to stay in their homes for longer, they’re investing in modest home improvements to upgrade their spaces without sacrificing their security deposits,” the report states.

As extreme weather events and increased temperatures become more of a regular occurrence, Yelp said it is also seeing more business openings to satisfy growing demand for better-conditioned spaces.

“Entrepreneurs have also opened businesses to address needs related to extreme temperatures — for instance, heating, ventilation and air conditioning (HVAC) services businesses have grown by 10% to meet increasing demand amid extreme heat, and snow removal services increased 36% to assist households during major snow storms,” the report states. “States that suffered major heat waves this year saw the largest number of new HVAC businesses open, including California (863 business openings), Florida (860), Texas (719), and New York (373). Notably, Arizona (202) made the top ten, as Phoenix residents endured 100 days of 100 degrees this summer.”

Looking forward, Yelp is also predicting 2024 to be another record-setting year for the home service industry, as businesses are expecting to continue opening to meet the increased demand.

“As interest rates come down and consumers' spending power increases, we expect to see other industries return to growth. Yelp will continue to monitor these trends, providing insights into the ongoing economic shifts.”