All of the economic indicators point to a positive hydronic heating market in 2015, although there are a couple of interesting anomalies. Dale Stroud, senior director of marketing and offerings at Uponor Inc., recently review the leading economic indicators with CONTRACTOR staff and all of them were up, except one.
Housing starts have more than doubled since the bottom in 2009, now up to around 1.2 million units. The inventory of unsold homes has sunk down to its “normal” range of anywhere between four and six months. Builder optimism, as measured by the Housing Market Index, is back up above 50; in 2009 less than 10% of builders were optimistic. (A number of market indicators have 50 as the benchmark, except for the Conference Board’s Consumer Confidence Index, which uses 100 as the baseline.)
The AIA Architectural Billing Index is back up above 50. The Remodeling Market Index is well up above 50, from a low of 22 in the fourth quarter of 2008. The economy has added back 8.5 million jobs, making up for the 8.5 million jobs lost in the Great Recession.
The one outlier of all these indices, however, is the Consumer Confidence Index, which is lagging below its benchmark 100 level, although the outlook was much, much worse in January 2009.
The other anomaly is in the type of construction underway today, as noted by prominent consulting firm FMI in its 2015 U.S. Markets Construction Overview.
“This particular recovery is the first in the modern history of the United States not to feature housing as the recovery leader,” FMI noted in the report. “That in itself is unusual and may be part of the reason why this recovery is so irregular. Housing is, of course, recovering, but at a slow rate and from a very low base. The erratic nature of this recovery means that some geographies are doing much better than others, as are certain vertical markets. Being in the right place at the right time is an important part of capitalizing on this part of the cycle.”
Associated Builders & Contractors Chief Economist Anirban Basu confirmed the strength in the nonresidential market.
“ABC forecasts nonresidential construction spending will expand by roughly 7.5 percent next year,” said Basu. “The segments that will experience the largest growth in construction spending in 2015 include power (e.g., natural gas-related construction), lodging (leisure and business spending), office space (professional services employment creation) and manufacturing (rebounding industrial production).
“The public sector will see far more sluggish growth in construction spending,” Basu warned. “However, this fits a multi-year pattern with private nonresidential spending exceeding public nonresidential spending by 28 percent in 2014, up from 15.6 percent in 2013.”
That’s similar to what’s being seen by Mike Juhnke, product program manager at Lochinvar Corp.
“One insight that we have from Lochinvar University is that we bring in student and contractor groups from around the country so we get a lot of perspectives,” Juhnke noted. “And in talking to them we’re hearing about a lot of energy upgrades going on and that there is a lot more private money being invested. That’s what makes people optimistic. We had been getting work from government, schools and universities, but now guys are coming in saying that they have hotels or hospitals or a guy is upgrading a retirement home to condensing boilers. Over the last nine months, the majority of their work is private money. These are conversations, not data, but say you have 12 engineers in a room and you ask them, and it used to be that only 10% of them would say that they were getting private money a year ago.”
On the residential side, Taco Vice President of Brand Marketing Mark Chaffee is seeing building permits and housing starts increasing along the northern tier of states that are traditional hydronic territory, a good sign.
Oil-to-gas conversions have driven the market for the past few years, Chaffee explained, but that work is slowing with the moderation in oil prices. Now work is focused on energy efficiency, especially in the Northeast. The Northeast has ongoing issues with both electrical grid capacity and gas pipeline capacity that has kept prices high.
“We’re doing a lot of work with New England utilities to get kWs off the grid,” with initiatives such as high-efficiency circulator programs, Chaffee said. “That’s commercially focused; they are very aggressive with their programs.”
Both residential and commercial customers are willing to spend to increase their energy efficiency, he said, plus there has been a rapid escalation in new technology.
“People are experimenting with new technology and implementing it for sake of efficiency,” Chaffee said. “We certainly see that with products like chilled beams and the controls that go along with it.”
Chaffee also serves as chairman of the Radiant Professionals Alliance and he is excited about the pending introduction of the Uniform Solar Energy and Hydronics code, the first time there has ever been a code governing hydronic installations.
“That will be a huge change in our industry,” Chaffee said. “It won’t be the Wild, Wild West anymore. We’ll have a code that can govern the industry and to which we can train and teach and put together best practices manuals. The code just sets the minimum requirements but at least we’ll have that and that will be a major piece of how this industry is going to move forward. It will strengthen the industry and get more people to look at hydronic-based systems, how to apply them, how to take advantage of the comfort and efficiency benefits hydronic systems provide and give residential and commercial owners greater confidence in their installation and operation.”
Brian Fenske, Specialty Channel Sales Manager, Navien Inc., is expecting more from the commercial market than from the residential market. He believes that sales for hydronic heating market overall will increase in the neighborhood of 2 percent over 2014.
“It’s a hard year to figure out, what with gasoline prices falling, but I don’t see people spending that newfound money on their homes,” Fenske said. “It may be spent on trips and electronics.”
Fenske said that it’s disappointing that there is no federal involvement in terms of tax credits and rebates. On the other hand, he said, there have been a lot of conversations with gas utilities that are considering how they want to structure rebate programs. Fenske has heard of some gas utilities that want to ignore the consumer and go through distribution directly to the contractor. The notion is that contractors could entice consumers by lowering prices on expensive investments such as wall-hung condensing boilers.
“A lot of the feedback we’ve been getting lately is that people will change out equipment in order to get the rebate and then they fail to apply for it and then they’re mad — but should only be mad at themselves,” Fenske said.
Fenske also made note of changes in the sales mix of hydronic equipment, especially the growth of wall-hung combi boilers to supply both space heat and domestic hot water.
“The truth of the matter is that in seven years combi boiler sales have grown 406% in North America,” Fenske said. “If you look back at 2007 versus 2013, you saw a decrease in gas non-condensing boilers of 31%. You also saw a drop of 5% in floor-mounted gas condensing boilers. On the upside gas condensing wall-hung boilers grew 166%, and then gas wall-hung combi boilers grew 406%. In 2009, there were about 12,000 combi boilers sold in North America and in 2013 over 50,000 combi boilers sold. The trend started taking off in 2010.”