Gargaro was joined on stage by Chris Forth (JCI), Braden Cook (Carrier), John Schneider (Copeland), Doug Widenmann (Daikin), Randy Roberts (Rheem/Ruud), and Heather Buchicchio (Mitsubishi) for an hour-long back-and-forth, covering a wide array of topics related to the state of the industry.

Impact of Interest Rates, Consumer Confidence

From a residential perspective, the industry is looking at some uncertain times ahead.

With interest rates remaining high, new construction is stagnant, and those who were lucky enough to lock in at historically low mortgage rates during COVID have intention of moving, which is impacting existing home sales.

To stimulate the market, the panel is urging movement from the Federal Reserve.

“For me, the key element is getting to Fed to act relative to interest rates — I think that it will unlock a lot of pent-up demand,” Widenmann said. “For the first half of the year, based on a comparative perspective, I think we’re going to have a healthy start. And, if the Fed acts as it has signaled, in that June to July timeframe, I think we’re going to start seeing the ratcheting down of interest rates, which I think is going to stimulate some demand.”

But hand in hand with interest rates, higher-than-expected inflation might force some hesitancy from the Fed, according to Schneider. While that may be bad news for home sales, Schneider said it could be a boon for the add-or-replace market, which is about 80% of their model and mostly correlates to existing home investment.

“Short-term, I think those headwinds are going to be with us for a while,” Schneider said. “We have 80% of homeowners with mortgages that are 5%, 6%, or even 4%, so when it comes to moving to a new home, that’s a big factor now.”

Roberts said he believes the younger age bracket, which is struggling to break into the homeownership market, will likely stay renting until something changes, which will fortify that segment of the market.

“From my standpoint, I see multifamily continuing to be very strong just because of those dynamics that are out there around finding those available properties and that younger generation getting to move into that first house,” Roberts said.

Cook said if a business is mainly focused on residential, diversifying into the light commercial market, which shares a lot of similarities to residential, will also be a good bet this year, because he also doesn’t see any movement from those locked in at a low rate.

“I don’t think the consumers are going to jump into a new home, rather just say ‘let's fix the one we have,’” Cook said.

Coupled with rebates and other incentives, Buchicchio said that’s another reason the trend of staying in a home for a lot longer will continue, meaning those people are more likely looking to upgrade their systems.

“There’s a lot of money out there — between 25Cs and local utilities,” Buchicchio said. “As that money comes online through the Inflation Reduction Act, it’s making the products more affordable in those low-to-moderate income markets.”

“Even with the market relatively flat, we’re still seeing growth,” Buchicchio added.

But Forth doesn’t see those dollars starting to flow until later in the year, especially given that even in California, which is one of the most progressive states in regards to incentives to go renewable, contractors are currently having issues accessing it.

Given that fact, Widenmann said he sees that contractors are a little hesitant to offer some of these incentives, worried they could get stuck holding the bag until that money starts to flow. To combat this, Widenmann said the process to access money in these programs needs to be simplified.

Roberts said he’s seeing that confusion and frustration over IRA credits as well, with some contractors not being comfortable enough to put those offerings on the table.

Looming Regulations

As if complying with the changes already being implemented throughout the industry weren’t difficult enough to keep up with already, the panel plainly stated that there’s a lot more to come.

Forth said that, as an industry, it’s really important to stay in front of regulations because manufacturers would much rather build products that customers ordered, rather than try to forecast what the government is going to change next. Manufacturers also want to know how many heat pumps, furnaces, etc. they need to make, which is why market analysis and communication with contractors on the ground is paramount.

“We need to work really close (with contractors) to make sure we make that smooth transition,” Forth said.

Roberts warned that the pace of regulation is not going to slow down and HVAC contractors need to get involved in the process.

“We have furnace regulations on the horizon, we’ve got heat pump standards — I would just absolutely encourage everyone to get involved at the local level and the national level,” Roberts said. “We’re seeing a lot of states that are going to be real fast, early adopters.

“It’s absolutely going to impact your business in a big way,” Roberts added.

Schneider also echoed the importance of getting ahead of the next change, especially from their standpoint.

“We’ve got to be ahead of the game on the next change, so a lot of our engineering and technology development is around supporting this energy transition — higher-performing heat pumps, thermal storage,” Schneider said, adding there is also the Kigali stepdown and the rollout of the next refrigerant. “We’re going to focus on the execution of this transition first and foremost, but we’re starting to think ahead to the next (transition), because the pace of change is accelerating.”

Cook said in the short term, the A2L transition is the most important and to make sure teams are up-to-date on training before those products start arriving. He also suggested contractors add them to company training facilities so technicians can start familiarizing themselves.

Aside from regulations changing what contractors can offer customers, customers themselves have also undergone a significant change.

“Our consumers are becoming more educated than they ever have been,” Buchicchio said, adding that consumers usually already have an idea of what products they want before making a call thanks to more information being available at their fingertips.

Heat Pumps

Heat pumps were a nearly inescapable topic given their surge in popularity, which coincides with the electrification movement, and their technological strides were discussed at length.

“We love the trend; we love where we're going with decarbonization,” Buchicchio said, adding that heat pumps are more and more what customers are asking for. “It might not be for everyone at this moment, however, we are finding more and more consumers reaching out, educating themselves on heat pump technology and aligning themselves with efforts like decarbonization.”

Dual fuel heat pumps are finding greater opportunities in the northern climates so clients don’t have to rely on 100% electric heat when it gets really cold. Schneider said the progression in technology is also working to make heat pumps more attractive, especially when compared to older heat pumps that could feel like they were blowing cold air, an issue that has been solved with newer models that provide more comfort for the consumer. Technologies like inverter-based compression, variable speed compression, and mechanical modulation like two-stage compression are continuing to mature and enable the natural progression into the cold-climate market.

With that in mind, Roberts added that the industry should be doing more to push dual fuel.

“Hopefully, we'll see more (dual fuel units) in the industry than what we're seeing today — that is a fantastic system, especially for the northern markets that are migrating toward all-electric,” Roberts said. “As we all said, we all have the products that are actually designed to work in those cold climates — getting there is the real challenge.”